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Chapter 11 Homework Assignment
Lawrence Choynski, the plant controller at Bart Plastics, wants to identify cost drivers for manufacturing overhead costs. Indirect support consists of skilled staff responsible for the efficient functioning of all aspects (setup, production, maintenance, and quality control) of the plastic injection molding facility. In talking with the support staff, Choynski has the impression that the staff spends a sizable portion of its time ensuring that the equipment is set up correctly and checking that the first units of production in each batch are of good quality.
Choynski has collected the following data for the past 12 months:
Month Manufacturing
Hours Number of
Batches
January \$84,000 2,250 309
February 41,000 2,400 128
March 63,000 2,850 249
April 44,000 2,100 159
May 44,000 2,700 216
June 48,000 2,250 174
July 66,000 3,800 264
August 46,000 3,600 162
September 33,000 1,850 147
October 66,000 3,300 219
November 81,000 3,750 303
December 57,000 2,000 106
Total \$673,000 32,850 2,436
Choynski estimates the following two regression equations:
y = \$28,089 + (\$10.23 x Machine-hours)
y = \$16,031 + (\$197.30 x Number of batches)
where y is the monthly manufacturing overhead costs.
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Required:
1. Plot the monthly data and the regression lines for each of the following cost functions:
a. Manufacturing overhead costs = a + (b x Machine-hours)
b. Manufacturing overhead costs = a + (b x Number of batches)
Which cost driver for manufacturing overhead costs would you choose? Explain.
2. Choynski anticipates 2,600 machine-hours and 300 batches for next month. Using the cost driver you chose in requirement 1, what amount of manufacturing overhead costs should Choynski budget?
3. Assume the facts in requirement 2. Choynski adds 20% to costs to determine target revenues (and hence selling prices). Costs other than manufacturing overhead are expected to be \$125,000 next month. Compute the target revenue numbers for next month if the cost driver for manufacturing overhead is i) machine-hours and ii) number of batches. What would happen if Choynski set target revenues and selling prices using the cost driver you did not choose in requirement 1?