Mary Adams, the chief inspector, is wondering whether inspection labor-hours might be a better cost driver for inspection costs. Mary gathers information for weekly inspection costs, rooms inspected, and inspection labor-hours as follows: Week Rooms Inspected Inspection Labor-Hours Inspection Costs $1,740 254 66 322 110 2,500 3 335 82 2,250 4 431 123 2,800 198 48 1,400 6 239 62 1,690 252 108 1,720 8 325 127 2,200 Mary runs regressions on each of the possible cost drivers and estimates these cost functions: Inspection Costs = $193.19 + ($6.26 × Number of rooms inspected) Inspection Costs = $944.66 + ($12.04 x Inspection labor-hours) 1. Explain why rooms inspected and inspection labor-hours are plausible cost drivers of inspection costs. 2. Plot the data and regression line for rooms inspected and inspection costs. Plot the data and regres- sion line for inspection labor-hours and inspection costs. Which cost driver of inspection costs would you choose? Explain. 3. Mary expects inspectors to inspect 300 rooms and work for 105 hours next week. Using the cost driver you chose in requirement 2, what amount of inspection costs should Mary budget? Explain any implica- tions of Mary choosing the cost driver you did not choose in requirement 2 to budget inspection costs. Required
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Regression, activity-based costing, choosing cost drivers. Sleep Late, a large hotel chain, has been using activity-based costing to determine the cost of a night’s stay at their hotels. One of the activities, “Inspection,” occurs after a customer has checked out of a hotel room. Sleep Late inspects every 10th room and has been using “number of rooms inspected” as the cost driver for inspection costs. A signicant component of inspection costs is the cost of the supplies used in each inspection.
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