Spark Electrical Company manufactures electrical components. Plant management has experienced difficulties with fluctuating monthly overhead costs. Management wants to be able to estimate overhead costs to plan its operations and financial needs. A trade association publication reports that for companies manufacturing electrical components, overhead tends to vary with machine hours. Monthly data was gathered on machine hours and overhead costs for the past two years. There were no major changes in operations over this period of time. The raw data is: Month Number Machine Hours Overhead Costs ($) 1 20,000 84,000 2 25,000 99,000 3 22,000 89,500 4 23,000 90,000 5 20,000 81,500 6 19,000 75,500 7 14,000 70,500 8 10,000 64,500 9 12,000 69,000 10 17,000 75,000 11 16,000 71,500 12 19,000 78,000 13 21,000 86,000 14 24,000 93,000 15 23,000 93,000 16 22,000 87,000 17 20,000 80,000 18 18,000 76,500 19 12,000 67,500 20 13,000 71,000 21 15,000 73,500 22 17,000 72,500 23 15,000 71,000 24 18,000 75,000 The data was entered into Excel and a regression was run on the data. The following output was obtained: R-square 0.91 Coefficients of the equation: Intercept 39,859 Independent variable (slope) 2.15 Required: 1. Use the high–low method to estimate the overhead costs. High fill in the blank 1 Low fill in the blank 2 Change fill in the blank 3 2. Are the regression analysis results acceptable? 3. Use the results of both the high–low method and the regression to prepare the cost estimation equation and to prepare a cost estimate for 22,000 machine hours. Using the high-low method, the overhead equation is: Overhead = fill in the blank 5 + 2.30*MH The estimate of overhead costs at 22,000 machine hours is: $fill in the blank 6 + 2.30 ( fill in the blank 7 ) = $fill in the blank 8 Using regression analysis, the overhead equation is: Overhead = fill in the blank 9 + 2.30*MH The estimate of overhead costs at 22,000 machine hours is: $fill in the blank 10 + 2.15 ( fill in the blank 11 ) = $fill in the blank 12
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Cost Classification and Behaviour—Spark Electrical Company
Spark Electrical Company manufactures electrical components. Plant management has experienced difficulties with fluctuating monthly
Monthly data was gathered on machine hours and overhead costs for the past two years. There were no major changes in operations over this period of time. The raw data is:
| Month Number | Machine Hours | Overhead Costs ($) |
| 1 | 20,000 | 84,000 |
| 2 | 25,000 | 99,000 |
| 3 | 22,000 | 89,500 |
| 4 | 23,000 | 90,000 |
| 5 | 20,000 | 81,500 |
| 6 | 19,000 | 75,500 |
| 7 | 14,000 | 70,500 |
| 8 | 10,000 | 64,500 |
| 9 | 12,000 | 69,000 |
| 10 | 17,000 | 75,000 |
| 11 | 16,000 | 71,500 |
| 12 | 19,000 | 78,000 |
| 13 | 21,000 | 86,000 |
| 14 | 24,000 | 93,000 |
| 15 | 23,000 | 93,000 |
| 16 | 22,000 | 87,000 |
| 17 | 20,000 | 80,000 |
| 18 | 18,000 | 76,500 |
| 19 | 12,000 | 67,500 |
| 20 | 13,000 | 71,000 |
| 21 | 15,000 | 73,500 |
| 22 | 17,000 | 72,500 |
| 23 | 15,000 | 71,000 |
| 24 | 18,000 | 75,000 |
The data was entered into Excel and a regression was run on the data. The following output was obtained:
| R-square | 0.91 |
| Coefficients of the equation: | |
| Intercept | 39,859 |
| Independent variable (slope) | 2.15 |
Required:
1. Use the high–low method to estimate the overhead costs.
| High | fill in the blank 1 |
| Low | fill in the blank 2 |
| Change | fill in the blank 3 |
2. Are the regression analysis results acceptable?
3. Use the results of both the high–low method and the regression to prepare the cost estimation equation and to prepare a cost estimate for 22,000 machine hours.
Using the high-low method, the overhead equation is:
Overhead = fill in the blank 5 + 2.30*MH
The estimate of overhead costs at 22,000 machine hours is:
$fill in the blank 6 + 2.30 ( fill in the blank 7 ) = $fill in the blank 8
Using regression analysis, the overhead equation is:
Overhead = fill in the blank 9 + 2.30*MH
The estimate of overhead costs at 22,000 machine hours is:
$fill in the blank 10 + 2.15 ( fill in the blank 11 ) = $fill in the blank 12
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