An important application of regression analysis in accounting is in the estimation of cost. By collecting data on volume and cost and using the least squares method to develop an estimated regression equation relating volume and cost, an accountant can estimate the cost associated with a particular manufacturing volume. Consider the following sample of production volumes and total cost data for a manufacturing operation.

Bethesda Mining is a mid-sized coal mining company with 20 mines located in Ohio, Pennsylvania, West Virginia, and Kentucky. The company operates deep mines as well as strip minds. Most of the coal mined is sold under contract, with excess production sold on the spot market.The coal mining industry, especially high-sulfur coal operations such as Bethesda, has been hard-hit by environmental regulations. Recently, however, a combination of increased demand for coal and new pollution reduction technologies has led to an improved market demand for high-sulfur coal. Bethesda has been approached by Mid-Ohio Electric Company with a request to supply coal for its electric generators for the next 4 years. Bethesda Mining does not have enough excess capacity at its existing mines to guarantee the contract. The company is considering opening a strip mine in Ohio on 5,000 acres of land purchased 10 years ago for $4 million. Based on a recent appraisal, the company feels it could receive $6.5 million on an after-tax basis if it sold the land today.Strip Mining is a process where the layers of topsoil above a coal vein are removed and the exposed coal is removed. Some time ago, the company would remove the coal and leave the land in an unusable condition. Changes in mining regulations now force a company to reclaim the land; that is, when the mining is completed, the land must be restored to near its original condition. The land can then be used for other purposes. Because it is currently operating at full capacity, Bethesda will need to purchase additional necessary equipment, which will cost $95 million. The equipment will be depreciated on a 7-year MACRS schedule. The contract runs for only 4 years. At that time the coal from the site will be entirely mined. The company feels that the equipment can be sold for 60% of its initial purchase price in four years. The contract calls for the delivery of 500,000 tons of coal per year at a price of $86 per ton. Bethesda Mining feels that coal production will be 620,000 tons, 680,000 tons, 730,000 tons, and 590,000 tons, respectively, over the next four years. The excess production will be sold in the spot market at an average of $77 per ton. Variable costs amount to $31 per ton, and fixed costs are $4,100,000 per year. The mine will require a net working capital investment of 5% of sales. The NWC will be built up in the year prior to the sales. Bethesda will be responsible for reclaiming the land at termination of the mining. This will occur in Year 5. The company uses an outside company for reclamation of all the company’s strip minds. It is estimated the cost of reclamation will be $2.7 million. In order to get the necessary permits for the strip mine, the company agreed to donate the land after reclamation to the state for use as a public park and recreation area. This will occur in Year 6 and result in a charitable expense deduction of $6 million. Bethesda faces a 25% tax rate and has a 12% required return on new strip mine projects. Assume that a loss in any year will result in a tax credit.You have been approached by the president of the company with a request to analyze the project. Calculate the NPV, IRR for the new strip mine. Should Bethesda Mining take the contract and open the mine?

Bethesda Mining is a mid-sized coal mining company with 20 mines located in Ohio, Pennsylvania, West Virginia, and Kentucky. The company operates deep mines as well as strip minds. Most of the coal mined is sold under contract, with excess production sold on the spot market.The coal mining industry, especially high-sulfur coal operations such as Bethesda, has been hard-hit by environmental regulations. Recently, however, a combination of increased demand for coal and new pollution reduction technologies has led to an improved market demand for high-sulfur coal. Bethesda has been approached by Mid-Ohio Electric Company with a request to supply coal for its electric generators for the next 4 years. Bethesda Mining does not have enough excess capacity at its existing mines to guarantee the contract. The company is considering opening a strip mine in Ohio on 5,000 acres of land purchased 10 years ago for $4 million. Based on a recent appraisal, the company feels it could receive $6.5 million on an after-tax basis if it sold the land today.Strip Mining is a process where the layers of topsoil above a coal vein are removed and the exposed coal is removed. Some time ago, the company would remove the coal and leave the land in an unusable condition. Changes in mining regulations now force a company to reclaim the land; that is, when the mining is completed, the land must be restored to near its original condition. The land can then be used for other purposes. Because it is currently operating at full capacity, Bethesda will need to purchase additional necessary equipment, which will cost $95 million. The equipment will be depreciated on a 7-year MACRS schedule. The contract runs for only 4 years. At that time the coal from the site will be entirely mined. The company feels that the equipment can be sold for 60% of its initial purchase price in four years. The contract calls for the delivery of 500,000 tons of coal per year at a price of $86 per ton. Bethesda Mining feels that coal production will be 620,000 tons, 680,000 tons, 730,000 tons, and 590,000 tons, respectively, over the next four years. The excess production will be sold in the spot market at an average of $77 per ton. Variable costs amount to $31 per ton, and fixed costs are $4,100,000 per year. The mine will require a net working capital investment of 5% of sales. The NWC will be built up in the year prior to the sales. Bethesda will be responsible for reclaiming the land at termination of the mining. This will occur in Year 5. The company uses an outside company for reclamation of all the company’s strip minds. It is estimated the cost of reclamation will be $2.7 million. In order to get the necessary permits for the strip mine, the company agreed to donate the land after reclamation to the state for use as a public park and recreation area. This will occur in Year 6 and result in a charitable expense deduction of $6 million. Bethesda faces a 25% tax rate and has a 12% required return on new strip mine projects. Assume that a loss in any year will result in a tax credit.You have been approached by the president of the company with a request to analyze the project. Calculate the NPV, IRR for the new strip mine. Should Bethesda Mining take the contract and open the mine?

The quantity of dissolved oxygen is a measure of water pollution in lakes, rivers, and streams. Water samples were taken at four different locations in a river in an effort to determine if water pollution varied from location to location. Location I was 500 meters above an industrial plant water discharge point and near the shore. Location II was 200 meters above the discharge point and in midstream. Location III was 50 meters downstream from the discharge point and near the shore. Location IV was 200 meters downstream from the discharge point and in midstream. The following table shows the results. Lower dissolved oxygen readings mean more pollution. Because of the difficulty in getting midstream samples, ecology students collecting the data had fewer of these samples. Use a 5% level of significance. Do we reject or not reject the claim that the quantity of dissolved oxygen does not vary from one location to another?

(a) What is the level of significance?

(b) Find SS_TOT, SS_BET, and SS_W and check that SS_TOT = SS_BET + SS_W. (Use 3 decimal places.)

Find d.f._BET, d.f._W, MS_BET, and MS_W. (Use 3 decimal places for MS_BET, and MS_W.)

Find the value of the sample F statistic. (Use 3 decimal places.)

What are the degrees of freedom?
(numerator)
(denominator)

(c) Make a summary table for your ANOVA test.

#40

The quantity of dissolved oxygen is a measure of water pollution in lakes, rivers, and streams. Water samples were taken at four different locations in a river in an effort to determine if water pollution varied from location to location. Location I was 500 meters above an industrial plant water discharge point and near the shore. Location II was 200 meters above the discharge point and in midstream. Location III was 50 meters downstream from the discharge point and near the shore. Location IV was 200 meters downstream from the discharge point and in midstream. The following table shows the results. Lower dissolved oxygen readings mean more pollution. Because of the difficulty in getting midstream samples, ecology students collecting the data had fewer of these samples. Use a 5% level of significance. Do we reject or not reject the claim that the quantity of dissolved oxygen does not vary from one location to another?

(b) Find SS_TOT, SS_BET, and SS_W and check that SS_TOT = SS_BET + SS_W. (Use 3 decimal places.)

Find d.f._BET, d.f._W, MS_BET, and MS_W. (Use 3 decimal places for MS_BET, and MS_W.)

Find the value of the sample F statistic. (Use 3 decimal places.)


What are the degrees of freedom?
(numerator)
(denominator)

(f) Make a summary table for your ANOVA test.

ABC company is considering producing a new range of smartphones that will require it to build a new factory. Feasibility studies have been done on the factory which cost $5 million. The studies have found the following:

1. The factory will cost $25 million and will have a useful life of 20 years.

2. The land where the factory will go is currently used as a carpark for workers and it is assumed that the company will have to pay $200000 per year for their workers to park in a nearby carpark.

3. The factory will be depreciated on a straight line basis and will have a salvage value of $0 but it is believed that most of it can be sold for scrap after 20 years for $50000.

4. Due to the nature of the business they are in, they will have to perform some environmental tests to make sure that some of the chemicals they are using are not entering the ground water around the factory. These tests will be performed every 5 years and cost $625000.

5. Through the building of this factory and the selling of the phones it produces, it’s revenue will increase by $5 million in year 1 and remain at this level for the operational life of the factory.

6. The extra costs that the company accrues per year due to the project are $435000 for labour, $50000 for overhead like power and water bills and marketing costs for the new line of phones will be $500000 per year but will decrease by $15000 per year as the phone gains greater penetration.

7. The company’s current cost of capital is 8% per year.

8. The tax rate is 30%.

9. The project requires an initial investment in working capital of $1000000 that is returned in year 20.

Use the above information to answer the following. I AM ONLY LOOKING FOR AN ANSWER TO C.

A. Calculate the free cash flows that come from this project for the 20 years it is operational. ​

B. Calculate the NPV, IRR and payback period of the project. Should they go ahead with the project? ​

C. Calculate the break even point for the following variables:​ (ANSWER IN EXCEL)

a. The cost of capital.

b. The yearly revenue.

c. The labour cost.

Pareto Chart and Cost of Quality Report for a Manufacturing Company The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The result of the activity analysis is summarized as follows: Required: 1. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality (producing product). Classify the activities into value-added and non-value added activities. Activity Activity Cost Cost of Quality Classification VA/NVA Correcting invoice errors $22,600 External failure Non-value-added Disposing of incoming materials with poor quality 18,080 Internal failure Non-value-added Disposing of scrap 54,240 Internal failure Non-value-added Expediting late production 45,200 Internal failure Non-value-added Final inspection 40,680 Appraisal Value-added Inspecting incoming materials 9,040 Appraisal Value-added Inspecting work in process 40,680 Appraisal Value-added Preventive machine maintenance 31,640 Prevention Value-added Producing product 162,720 Not a quality cost Value-added Responding to customer quality complaints 27,120 External failure Non-value-added Total $452,000 2. On paper or in a spreadsheet program, prepare a Pareto chart for each of the activities listed above. Answer the following: What type of chart is a Pareto chart? Bar chart Which activity appears first, in order from left to right? Producing product 3. Use the activity cost information to determine the percentages of total department costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. If required, round percentages to one decimal place. Quality Cost Classification Activity Cost Percent of Total Department Cost Prevention $ % Appraisal % Internal failure % External failure % Not a cost of quality % Total $ % 4. Determine the percentages of total department costs that are value-added and non-value-added. If required, round percentages to one decimal place. Activity Cost Percent of Total Department Cost Value-added $ % Non-value-added % Total $ % 5. The department has 37% of its total costs as non-value-added . Internal failure costs represent 26% of the total costs. This means there is significant opportunity for cost savings. External failure costs represent 11% of the total department costs.

Curtis & Company is an architectural firm specializing in home remodeling for private clients and new office buildings for corporate clients.

Curtis & Company charges customers at a billing rate equal to 130% of the client's total job cost. A client's total job cost is a combination of 1) professional cost based on the professional hours spent on the client's job, and 2) operating costs allocated to the client's job. Curtis currently allocates operating costs to jobs based on the number of professional hours spent on the job.

Curtis estimates its five professionals will work a total of 9,000 hours on client jobs during the year, and their salaries will total $990,000. All operating costs other than professional salaries (travel reimbursements, copy costs, secretarial salaries, office lease, etc.) can be grouped into three activities. Relevant information for these activities are estimated as follows:

Amy Lee hired Curtis & Company to design her kitchen remodeling. A total of 22 professional hours were spent on this job. In addition, Amy's remodeling job required one of the professionals to travel back and forth to her house for a total of 150 miles. The blueprints had to be copied five times because Amy changed the plans several times. In addition, 15 hours of secretarial time were used lining up the subcontractors for the job.

Question: What is the total cost of Amy Lee's remodeling job under the current single-driver system?

Question: What would be the total cost of Amy Lee's remodeling job under an activity-based costing system?

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption costing income statement for the most recent period is shown:

Hi-Tek produced and sold 60,300 units of B300 at a price of $19 per unit and 12,600 units of T500 at a price of $40 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $60,000 and $102,000 of the company’s advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company’s manufacturing overhead to four activities as shown below:

Required:

1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.

2. Compute the product margins for B300 and T500 under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

• Required 1
• Required 2
• Required 3

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)

Hi-Tek Manufacturing, Inc., makes two types of industrial component parts—the B300 and the T500. An absorption costing income statement for the most recent period is shown:

Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $39 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:

The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek’s ABC implementation team concluded that $54,000 and $103,000 of the company’s advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company’s manufacturing overhead to four activities as shown below:

Required:

1. Compute the product margins for the B300 and T500 under the company’s traditional costing system.

2. Compute the product margins for B300 and T500 under the activity-based costing system.

3. Prepare a quantitative comparison of the traditional and activity-based cost assignments.

Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answers to 1 decimal place and and other answers to the nearest whole dollar amounts.)