Estimate manufacturing overhead costs

Assignment Help Managerial Accounting
Reference no: EM13918283

Problem 1 : Analyze cost behavior

Renkas Industries is in the process of analyzing its manufacturing overhead costs. Renkas Industries is not sure if the number of units produced or number of direct labor (DL) hours is the best cost driver to use for predicting manufacturing overhead (MOH) costs. The following information is available:

Month

Manufacturing
Overhead Costs

Direct Labor
Hours

Units
Produced

MOH Cost
per DL Hour

MOH Cost per Unit Produced

July

$457,000

23,200

3,580

$19.70

$127.65

August

$512,000

26,600

4,290

$19.25

$119.35

September

$421,000

19,000

4,240

$22.16

  $ 99.29

October

$449,000

21,500

3,430

$20.88

$130.90

November

$571,000

31,000

5,730

$18.42

$ 99.65

December

$434,000

19,700

3,220

$22.03

$134.78

Requirements

1. Are manufacturing overhead costs fixed, variable, or mixed? Explain.

2. Graph Renkas Industries' manufacturing overhead costs against DL hours. Use Excel or graph by hand.

3. Graph Renkas Industries' manufacturing overhead costs against units produced. Use Excel or graph by hand.

4. Do the data appear to be sound, or do you see any potential data problems? Explain.

5. Use the high-low method to determine Renkas Industries' manufacturing overhead cost equation using DL hours as the cost driver. Assume that management believes all data to be accurate and wants to include all of it in the analysis.

6. Estimate manufacturing overhead costs if Renkas Industries incurs 25,000 DL hours in January.

Problem 2:

Regression analysis Refer to Renkas Industries in Problem 1.

Requirements

1. Use Excel regression analysis to determine Renkas Industries' manufacturing overhead cost equation using DL hours as the cost driver. Comment on the R-square. Estimate manufacturing overhead costs if Renkas Industries incurs 25,500 DL hours in January.

2. Use Excel regression analysis to determine Renkas manufacturing overhead cost equa¬tion using number of units produced as the cost driver. Use all of the data provided. Project total manufacturing overhead costs if Renkas Industries produces 4,900 units. Which cost equation is better-this one or the one from Requirement 1? Why?

3. Use Excel regression analysis to determine Renkas Industries' manufacturing overhead cost equation using number of units produced as the cost driver. This time, remove any potential outliers before performing the regression. How does this affect the R-square? Project total manufacturing overhead costs if 4,900 units are produced.

4. In which cost equation do you have the most confidence? Why?

Reference no: EM13918283

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