Concept explainers
Archer Company is a wholesaler of custom-built air-conditioning units for commercial buildings. It gathered the following monthly data relating to units shipped and total shipping expense:
Required
1. Prepare a scattergraph using the data given above. Plot cost on the vertical axis and activity on the horizontal axis. Is there an approximately linear relationship between shipping expense and the number of units shipped?
2. Using the high-low method, estimate the cost formula for shipping expense. Draw a straight line through the high and low data points shown in the scattergraph that von prepared in requirement (1). Make sure vow line intersects the Y-axis.
3. Comment on the accuracy of vow high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $91071 per month and the variable cost to be $217.86 per unit. How would the straight line that yon drew in requirement 2 differ from a straight line that minimizes the sum of the squared errors?
4. What factors, other than the number of units shipped, are likely to affect the company's shipping expense? Explain.
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Introduction To Managerial Accounting
- Method of Least Squares, Predicting Cost for Different Time Periods from the One Used to Develop a Cost Formula Refer to the information for Farnsworth Company on the previous page. However, assume that Tracy has used the method of least squares on the receiving data and has gotten the following results: Required: 1. Using the results from the method of least squares, prepare a cost formula for the receiving activity. 2. Using the formula from Requirement 1, what is the predicted cost of receiving for a month in which 1,450 receiving orders are processed? (Note: Round your answer to the nearest dollar.) 3. Prepare a cost formula for the receiving activity for a quarter. Based on this formula, what is the predicted cost of receiving for a quarter in which 4,650 receiving orders are anticipated? Prepare a cost formula for the receiving activity for a year. Based on this formula, what is the predicted cost of receiving for a year in which 18,000 receiving orders are anticipated?arrow_forwardLarsen, Inc., produces two types of electronic parts and has provided the following data: There are four activities: machining, setting up, testing, and purchasing. Required: 1. Calculate the activity consumption ratios for each product. 2. Calculate the consumption ratios for the plantwide rate (direct labor hours). When compared with the activity ratios, what can you say about the relative accuracy of a plantwide rate? Which product is undercosted? 3. What if the machine hours were used for the plantwide rate? Would this remove the cost distortion of a plantwide rate?arrow_forwardPatterson Company produces wafers for integrated circuits. Data for the most recent year are provided: aCalculated using number of dies as the single unit-level driver. bCalculated by multiplying the consumption ratio of each product by the cost of each activity. Required: 1. Using the five most expensive activities, calculate the overhead cost assigned to each product. Assume that the costs of the other activities are assigned in proportion to the cost of the five activities. 2. Calculate the error relative to the fully specified ABC product cost and comment on the outcome. 3. What if activities 1, 2, 5, and 8 each had a cost of 650,000 and the remaining activities had a cost of 50,000? Calculate the cost assigned to Wafer A by a fully specified ABC system and then by an approximately relevant ABC approach. Comment on the implications for the approximately relevant approach.arrow_forward
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