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?