ACC 406 Chapter Notes - Chapter 3: Denim, Cost Driver, Fixed Cost
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McKnight Industries is in the process of analyzing itsmanufacturing overhead cost. The compnay is not sure if the numberof units produced or number of direct labor (DL) hours is the bestcost driver to use for predicting manfactoring overhead (MOH)costs.
The following information is available:
Month | Manufactoring Overhead Costs | Direct Labor Hours | Units Produced | MOH Cost Per DL hours | MOH Cost per Unit Produced |
July | $ 485,000 | 25,000 | 3,800 | $19.40 | $127.63 |
August | $ 540,000 | 26,700 | 4,360 | $20.22 | $123.85 |
September | $ 420,000 | 20,000 | 4,210 | $21.00 | $99.76 |
October | $ 462, 000 | 21,900 | 3,450 | $21.10 | $133.91 |
November | $579,000 | 32,000 | 5,600 | $18.09 | $103.39 |
December | $455,000 | 20,400 | 3,270 | $22.30 | $139.14 |
Requirement 1. Determine if the manufactoringoverhead costs are fixed, variable, or mixed?
McKnight's manufactoring overhead appers to be a _______(fixed,mixed variable) cost. If it were a _______(fixed, mixed, variable)cost, it would remain constant in toal each month. If it were a______(fixed, mixed, variable) cost, it would remain constant on aper unit (of activity) basis. Both McKnight's MOH per DL hour andMOH per unit ______ (are fixed, vary) with volume.
Requirements 2. Graph the company'smanufacturing overhead cost agianst DL hours. Plot the points onthe graph for the manufacturing overhead costs agianst DLhours.
Requirement 3. Graph the company'smanufacturing overhead costs against units produced. Plot thepoints on the graph for the manufacturing overhead costs againstunits produced.
Requirement 4. Do the data appear to be soundor do you see any potential data problems? Explain.
There ________(does apper to be an, does not appear) outlier inthe graph depicting MOH costs vs. DL hours. In the graph of MOHcosts vs. units, there ________(does apper, does not appear to beany) outlier. _______( No, july,august, setp, oct. nov. dec) datapoint appears out of line with the other data points. If any of thedata points are out of line, management ______(should, should not)check into this data before continuing with the analysis.
Requirement 5. Use the high- low method todetermine the company's manufactoring overhead cost equation usingDL hours as the cost driver. Assume that management believes alldata to be accurate and wants to include all of it in the analysis.(Round the variable costto the nearest cent)
y= $__x + $ _____
Requirement 6. Estimate manufactoring overheadcosts if the company incures 26,000 DL hours in January. January'sestimated manufacturing overhead costs are $_________