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In: Accounting

Renkas Industries is in the process of analyzing its manufacturing overhead costs. Management is not sure...

Renkas Industries is in the process of analyzing its manufacturing overhead costs. Management 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: Data Table Month Manufacturing DL Hours Units MOH Cost MOH Cost Overhead Costs Produced per DL Hour per Unit Produced July $475,000 25,500 3,640 $18.63 $130.49 August $518,000 28,000 4,350 $ 18.50 $119.08 September $469,000 22,000 4,260 $ 21.32 $110.09 October $460,000 22,800 3,420 $ 20.18 $134.50 November $586,000 31,000 5,800 $18.90 $101.03 December $450,000 22,200 3,280 $ 20.27 $137.20 Requirements 7. Are manufacturing overhead costs fixed, variable, or mixed? Explain. 8. Graph the company’s manufacturing overhead costs against DL hours. 9. Graph the company’s manufacturing overhead costs against units produced. 10. Do the data appear to be sound, or do you see any potential data problems? Explain. 11. Use the high-low method to determine the company’s 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. 12. Estimate manufacturing overhead costs if the company incurs 26,000 DL hours in January.

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Month

Manufacturing Overheads

DL Hours

Units Prod

Per DL Hour

Per Unit Producted

July

475000

25500

3640

18.63

130.49

August

518000

28000

4350

18.50

119.08

September

469000

22000

4260

21.32

110.09

October

460000

22800

3420

20.18

134.50

November

586000

31000

5800

18.90

101.03

December

450000

22200

3280

20.27

137.20

7

Manufacturing overhead are mixed cost because neither Total amount is fixed (if yes, it will be fixed) nor per unit amount is fixed (if yes, it will be variable).

8

9

10

Data looks sound as can be udnerstood by anyone even layman

11

Y1

469000

Y2

586000

X1

22000

X2

31000

Y2-Y1/X2-X1

(586000-469000)/(31000-22000)

13

Hence Fixed cost will be

469000-(22000*13)

183000

Final Equation

183000+13x

(x is DL Hours)

12

183000+13x

183000+13(26000)

521000

ekkarill92 answered 1 year ago

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