The ramon company manufactures a wide range

Assignment Help Accounting Basics
Reference no: EM13940507

The Ramon Company manufactures a wide range of products at several different plant locations. The Franklin plant, which manufactures electrical components, has been experiencing some difficulties with fluctuating monthly overhead costs. The fluctuations have made it difficult to estimate the level of overhead that will be incurred for any one month. Management wants to be better able to estimate overhead costs accurately in order to plan its operations and financial needs. A trade association publication to which Ramon Company subscribes indicates that for companies that manufacture electrical components, overhead tends to vary with direct labor hours. One member of the accounting staff proposes that the cost behavior pattern for overhead costs be determined. Then, overhead costs could be predicted from the budgeted direct labor hours. Another member of the accounting staff suggests that a good starting point for determining the cost behavior patterns of overhead costs would be an analysis of historical data. The historical cost behavior pattern would provide a basis for determining the cost behavior pattern. The methods proposed for this purpose are the high-low method and simple linear regression. Data on direct labor hours and the respective overhead costs incurred were collected for the past two years.

The raw data follow:
19a
Direct Labor Hours x
Overhead Costs y
January
20,000 hours
$84,000
February
25,000
99,000
March
22,000
89,000
April
23,000
90,000
May
June
July
August
September
October
November
December
20,000
19,000
14,000
10,000
12,000
17,000
16,000
19,000
81,000
75,000
70,000
64,000
69,000
75,000
71,000
78,000
19b
Direct Labor Hours x
Overhead Costs y
January
21,000 hours
$86,000
February
24,000
93,000
March
23,000
87,000
April
22,000
80,000
May
June
July
August
September
October
November
December
20,000
18,000
12,000
13,000
15,000
17,000
15,000
18,000
76,000
67,000
71,000
73,000
72,000
71,000
75,000
78,000
Using linear regression, the following data were obtained:
Coefficient of determination (r2) 0.9109
Coefficient of regression equation
Constant 39,859
Independent variable 2.1549
Standard error of the estimate (s,) 2,840
Standard error of the regression coefficient for the independent variable (sb) 0.1437

Table t-statistic for a 95% confidence interval (when n -2 = 24 -2 = 22) 2.074

(a) Using the high-low method, determine the cost behavior pattern of the overhead costs for the Franklin plant.
(b) Using the results of the regression analysis, calculate the estimate of overhead costs for
22,500 direct labor hours.
(c)Of the two proposed methods, which one should Ramon Company employ to determine the historical cost behavior pattern of the Frankliin plant's overhead costs? Explain your answer completely, indicating the reasons why the other method should not be used.
(CMA, adapted)
Enrollment in local colleges, 2005

Reference no: EM13940507

Questions Cloud

Describe observational and experimental epidemiology : Describe observational and experimental epidemiology as the two (2) study designs apply to either of the diseases you have chosen. Be sure to identify differences between these two types of analytic epidemiology
What suggestions would you give alan about how to start : What suggestions would you give Alan about how to start interviews in ways that establish a supportive environment for interaction?
Can radio be a good buy for national wide reach : For an advertiser that seeks to achieve nationwide reach, can radio be a good buy?
Describe the basic types of epidemiologic study designs : Describe the basic types of epidemiologic study designs that are used to test hypotheses, identify associations and establish causation
The ramon company manufactures a wide range : The Ramon Company manufactures a wide range of products at several different plant locations. The Franklin plant, which manufactures electrical components, has been experiencing some difficulties with fluctuating monthly overhead costs.
Explain what is meant by the term operating leverage : Explain what is meant by the term operating leverage. What impact does increased leverage have on risk? How can sensitivity analysis be used in conjunction with CVP analysis?
Sketch the shear force and bending moment diagrams : Sketch the shear force and bending moment diagrams for the simply supported beams and cantilevers shown in Figures 1.87-1.91 . Indicate the magnitude and nature of the maximum shear force and bending moment and the positions where they occur.
Why was criminal justice not regarded as system in the past : Who played the greatest role in creating our new discipline, profession, and science of criminal justice: the courts? Congress? The administration? The universities? Explain your answer.
How much more or less expense was booked : What journal entries did they book to go from the beginning balance to the ending balance? How much more or less expense was booked under the accrual basis than the cash basis?

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  Financial statement case details about a companys

financial statement case details about a companys liabilities appear in a number of places in the annual report. use

  Accounts debited and credited for business events

The Hershey Foods Company manufactures chocolate confectionery products. The three largest raw materials are cocoa beans, sugar, and dehydrated milk. Show the accounts debited and credited for each of the following business events:

  Uncollectible account if the hospital uses the allowance

Assuming the patient owed the hospital $ 3,000, prepare the entry or entries necessary to record the uncollectible account if the hospital uses the allowance method.

  Features that distinguish debt from equity

What are the main features that distinguish debt from equity? Is there more debt or more equity outstanding in the United States?

  Consider the following information pertaining to a years

consider the following information pertaining to a years operations of youngstown manufacturingunits sold 1400units

  What amount did extreme fitness expect to collect

Show how the company would have reported its receivable accounts on December 31, 2014. As of that date, what amount did Extreme Fitness expect to collect? Prepare the journal entry to write off the accounts on January 2, 2015.

  What controls must have been lacking at white electric

What the bookkeeper did was definitely unethical. But what if one of her grandchildren had been ill and needed an expensive operation? If this had been the case, would it have been ethical for her to take company funds to pay for the operation if ..

  What is the maximum amount per unit the company would

what is the maximum amount per unit the company would be willing to pay to the outside manufacturer?

  The cash account of safe and secure security systems

the cash account of safe and secure security systems reported a balance of 2490 at may 31 2011. there were outstanding

  Calculate the accounts receivable turnover ratio.

Calculate the accounts receivable turnover ratio.

  Explain the basics of accounting

Your father runs a small auto body shop. He has decided to computerize his records and has asked you to explain the basics of accounting to him so that he can enter the data into his accounting software.

  Long-term investment

As a long-term investment, Painters' Equipment Company purchased 20% of AMC Supplies, Inc.'s 400,000 shares for $480,000 at the beginning of the fiscal year of both companies.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd