(a) The following information is extracted from the cost accounting records for Johnson & Johnson Ltd.To be able to control the Sales & Marketing department overhead cost the cost accounting department has been given the task of coming up with a cost function that can be used to estimate the Sales & Marketing department overhead cost. The cost accounting department identified two activity levels that can be used for prediction of the Sales & Marketing department overhead cost. The information was extracted from the cost accounting information system database for the last 10 months. The Sales & Marketing department overhead cost function can be derived using two activity levels; Number of Baby Powder Orders Received during the month (X1) and Total weight of Baby Powder sold during the month in Kgs (X2).
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
i) Using the high-low method derive the cost function that can be used to predict the Sales
&Marketing department
Received during the month (X1) as the activity level.
ii) Using the high-low method derive the cost function that can be used to predict the Sales
&Marketing department overhead cost using the Total weight of Baby Powder sold during
the month in Kgs (X2)as the activity level
iii) Using the cost function derived in (i) above using the Number of Baby Powder Orders
Received during the month (X1) as the activity level estimate the Sales &Marketing
department overhead cost for the month of September 2021 where the Number of Baby
Powder Orders Received is expected to be 1,800 orders
iv) Using the cost function derived in (ii) above using the Total weight of Baby Powder sold
during the month in Kgs (X2) as the activity level estimate the Sales &Marketing
departmentoverhead cost for the month of September 2021 where Total weight of Baby
Powder sold during the month in Kgs) expected to be 505,000 Kgs.
v) If the actual Sales and Marketing department overhead cost that was incurred during the
month of September 2021 was Shs 23,550,000 explain which of the two cost functions
derived in (i) using Number of Baby Powder Orders Received during the month (X1) as
the activity level and (ii) using the Total weight of Baby Powder sold during the month in
Kgs (X2) as the activity level is more accurate in predicting the Sales &Marketing
department overhead cost.
Step by step
Solved in 4 steps
