Method of Least Squares, Developing and Using the Cost Formula The method of least squares was used to develop a cost equation to predict the cost of receiving purchased parts at a video game manufacturer. Ninety-six data points from monthly data were used for the regression. The following computer output was received: Intercept 147,400 Slope 210 The cost driver used was number of parts inspected. Required: 1. What is the cost formula? Total cost of receiving = $ + ( $ × ) 2. Using the cost formula from Requirement 1, identify each of the following: independent variable, dependent variable, Variable rate per professional hour, and fixed cost per month. Independent variable Dependent variable Variable rate per professional hour per part inspected Fixed cost per month 3. Using the cost formula, predict the cost of receiving for a month in which 6,800 parts are inspected. Total cost of receiving = $
Method of Least Squares, Developing and Using the Cost Formula
The method of least squares was used to develop a cost equation to predict the cost of receiving purchased parts at a video game manufacturer. Ninety-six data points from monthly data were used for the regression. The following computer output was received:
| Intercept | 147,400 |
| Slope | 210 |
The cost driver used was number of parts inspected.
Required:
1. What is the cost formula?
Total cost of receiving = $ + ( $ × )
2. Using the cost formula from Requirement 1, identify each of the following: independent variable, dependent variable, Variable rate per professional hour, and fixed cost per month.
| Independent variable | ||
| Dependent variable | ||
| Variable rate per professional hour | per part inspected | |
| Fixed cost per month |
3. Using the cost formula, predict the cost of receiving for a month in which 6,800 parts are inspected.
Total cost of receiving = $
Identifying the Parts of the Cost Formula; Calculating Monthly, Quarterly, and Yearly Costs Using a Cost Formula Based on Monthly Data
Gordon Company's controller, Eric Junior, estimated the following formula, based on monthly data, for
Overhead Cost = $150,000 + ($52 x Direct Labor Hours)
Required:
1. Select the term in the right column that corresponds to the term in the left column.
| Overhead cost | |
| $150,000 | |
| $52 | |
| Direct labor hours |
2. If next month's budgeted direct labor hours equal 8,000, what is the budgeted overhead cost?
$
3. If next quarter's budgeted direct labor hours equal 23,000, what is the budgeted overhead cost?
$
4. If next year's budgeted direct labor hours equal 99,000, what is the budgeted overhead cost?
$
Amiens Company produced 20,000 units during its first year of operations and sold 18,900 at $17 per unit. The company chose practical activity—at 20,000 units—to compute its predetermined overhead rate.
| Direct materials | $ 80,000 |
| Direct labor | 101,400 |
| Variable overhead | 15,600 |
| Fixed overhead | 54,600 |
Required:
1. Calculate the unit cost for each of these four costs. Round your answers to the nearest cent.
Direct Materials Cost $
Direct Labor Cost $
Variable Overhead Cost $
Fixed Overhead Cost $
2. Calculate the cost of one unit of product under absorption costing. Round your answer to the nearest cent.
$
3. How many units are in ending inventory?
$
4. Calculate the cost of ending inventory under absorption costing.
$
Inventory Valuation under Variable Costing
Lane Company produced 50,000 units during its first year of operations and sold 47,300 at $12 per unit. The company chose practical activity—at 50,000 units—to compute its predetermined overhead rate. Manufacturing costs are as follows:
| Direct materials | $123,000 |
| Direct labor | 93,000 |
| Variable overhead | 65,000 |
| Fixed overhead | 51,000 |
Required:
1. Calculate the cost of one unit of product under variable costing. Round your answer to the nearest cent.
$
2. Calculate the cost of ending inventory under variable costing.
$
Income Statements under Absorption and Variable Costing
In the coming year, Kalling Company expects to sell 28,700 units at $32 each. Kalling’s controller provided the following information for the coming year:
| Units production | 30,000 |
| Unit direct materials | $ 9.95 |
| Unit direct labor | $ 2.75 |
| Unit variable overhead | $ 1.65 |
| Unit fixed overhead* | $ 2.50 |
| Unit selling expense (variable) | $ 2.00 |
| Total fixed selling expense | $ 65,500 |
| Total fixed administrative expense | $231,000 |
* The unit fixed overhead is based on 30,000 units produced.
Required:
1. Calculate the cost of one unit of product under absorption costing.
$
2. Calculate the cost of one unit of product under variable costing.
$
3. Calculate operating income under absorption costing for next year.
$
4. Calculate operating income under variable costing for next year.
$
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