Richard ellis the director of cost operations of american

Assignment Help Accounting Basics
Reference no: EM13581323

Richard Ellis, the director of cost operations of American Micro Devices, wishes to develop an accurate cost function to explain and predict support costs in the company's printed circuit board assembly operation. Mr. Ellis is concerned that the cost function that he currently uses - based on direct labor costs - is not accurate enough for proper planning and control of support costs. Mr. Ellis directed one of his financial analysts to obtain a random sample of 25 weeks of support costs and three possible cost drivers in the circuit-board assembly department: direct labor hours. number of boards assembled, and average cycle time of boards assembled. (Average cycle time is the average time between start and certified completion-after quality testing-of boards assembled during a week.) Much of the effort in this assembly operation is devoted to testing for quality and reworking defective boards, all of which increase the average cycle time in any period. Therefore, Mr. Ellis believes that average cycle time will be the best support cost driver. Mr. Ellis wants his analyst to use regression analysis to demonstrate which cost driver best explains support costs.

  • Circuit Board Number of Average Cycle
  • Assembly Support Direct Labor Boards Time (Hours)
  • Week Costs, Y Hours, X1 Completed, X2 X3

1 $66,402 7,619 2,983 186.44

2 56,943 7,678 2,830 139.14

3 60,337 7,816 2,413 151.13

4 50,096 7,659 2,221 138.30

5 64,241 7,646 2,701 158.63

6 60.846 7,765 2,656 148.71

7 43,119 7,985 2,495 105.85

8 63,412 7,962 2,128 174.02

9 59,283 7,793 2,127 155.30

10 60,070 7,732 2,127 162.20

11 53,345 7,771 2,338 142.97

12 65,027 7,842 2,685 176.08

13 58,220 7,940 2,602 150.19

14 65,406 7,750 2,029 194.06

15 35,268 7,954 2,136 100.51

16 46,394 7,768 2,046 137.47

17 71,877 7,764 2,786 197.44

18 61,903 7,635 2,822 164.69

19 50,009 7,849 2,178 141.95

20 49,327 7,869 2,244 123.37

21 44,703 7,576 2,195 128.25

22 45,582 7,557 2,370 106.16

23 43,818 7,569 2,016 131.41

24 62,122 7,672 2,515 154.88

25 52,403 7,653 2,942 140.07

Assume the following measured cost functions:

Y = $9,000 / week + ($6 x direct labor hours); R2 = .10

Y = $20,000 / week + ($14 x number of boards completed); R2 = .40

Y = $5,000 / week + ($350 x average cycle time); R2 = .80

1. 1. Which of the support cost functions would you expect to be the most reliable for explaining and predicting support costs? Why?

2. 2. Assume that American Micro Devices prices its products by adding a percentage markup to its product costs. Product costs include assembly labor, components, and support costs. Using each of the cost functions, compute the circuit board portion of the support cost of an order that used the following resources:

a. Effectively used the capacity of the assembly department for 3 weeks

b. Assembly labor hours : 20,000

c. Number of boards : 6,000

d. Average cycle time : 180 hours
3. Which cost driver would you recommend that American Micro Devices use? Why

4. Assume that the market for this product is extremely cost competitive. What do you think of American Micro Devices%u2019s pricing method?

Reference no: EM13581323

Questions Cloud

Water is moving with a speed of 20 ms through a perfectly : 1. water is moving with a speed of 2.0 ms through a perfectly sealed long pipe with a cross sectional area of 8 cm2.
Zhau manufacturing company has two departments machining : zhau manufacturing company has two departments machining and finishing. for a given period the following costs were
51-microc point charge is located atnbspxnbsp 11 mnbspynbsp : 5.1-microc point charge is located atnbspxnbsp 1.1 mnbspynbsp 2.8 m and a -3.9-microc point charge is located
The process of developing budget estimates by requiring all : the process of developing budget estimates by requiring all levels of management to estimate sales production and other
Richard ellis the director of cost operations of american : richard ellis the director of cost operations of american micro devices wishes to develop an accurate cost function to
Lowe manufacturing co warrants its products for one year : lowe manufacturing co. warrants its products for one year. the estimated product warranty is 4 of sales. assume that
David is lead partner in a local accounting firm whose : david is lead partner in a local accounting firm whose practice consists of tax consulting and compliance. the firm
Two equal positive charges of magnitudenbspq1nbspnbspq2nbsp : two equal positive charges of magnitudenbspq1nbspnbspq2nbsp 2 nc are on thenbspynbspaxis atnbspy1nbsp 3 cm
Shatner inc has decided to use the high-low method to : for the current year ending march 31 jwork company expects fixed costs of 725400 a unit variable cost of 64 and a unit

Reviews

Write a Review

Accounting Basics Questions & Answers

  Activity cost pool activity rate opening accounts per

asked on february 21 2013 want an answer?the operations vice president of first bank of eagle kristin wu has been

  Work with the iasb in such a cooperative manner

For years the FASB had little interest in pursuing international harmonization projects. What prompted its seemingly new interest in 2002 to work with the IASB in such a cooperative manner?

  Calculate the current ratio and inventory turnover

From the following information, compute the ratios indicated. Assume the average for the year is the same as the ending balances for the balance sheet accounts.

  What would be the reduction in watson stockholders equity

Watson Corporation owned 600,000 shares of Nixon Corporation stock. On December 31, 2012, when Watson's account "Investment in Common Stock of Nixon Corporation" had a carrying value of $5 per share, Watson distributed these shares to its stockhol..

  Paymore products places orders for goods equal to 75 of its

paymore products places orders for goods equal to 75 of its sales forecast in the next quarter. the sales forecasts for

  Nbspan application question which is about capital markets

nbspan application question which is about capital markets research in accounting.marcus padley a stockbroker made the

  The unadjusted trial balance

A company had calculated net income to be $78,200 based on the unadjusted trial balance.

  General journal entries to record the transactions

The Connecting company uses the percent of sales method of accounting for uncollectible accounts receivable. During the current year, the following transaction occurred: Prepare the general journal entries to record these transactions.

  Problem on producing annual cash flows

An investment that costs $25,000 will produce annual cash flows of $5,000 for a period of 6 years. Further, the investment has an expected salvage value of $3,000. Given a desired rate of return of 12%, the investment will generate a (round your a..

  Interpret the companys quick ratio

Compute the quick ratio for December 31, 2012 and 2011 and interpret the company's quick ratio

  Capitalized by starlight

Other than the construction funds borrowed, the only other debt outstanding during the year was a $150,000, 10-year, 7% note payable dated January 1, YEar 1. How much interest should be capitalized by Starlight during Year 3?

  Partial bond amortization schedule for the bonds

Discount-mart issued ten thousand $1000 bonds on January 1, 2009. They have a ten-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.

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