Reference no: EM13771424 , Length:

1. Analyze manufacturing overhead

2. Develop a comparison of application of manufacturing overhead using a traditional and an ABC approach.

3. Recommend a course of action on how to apply manufacturing overhead.

4. Develop scattergraphs, simple regression output tables, and multiple output table.

5. Develop cost estimation based on your regression analysis.

6. Analyze results and recommend the best approach for the cost estimation.

Part 1-- Using a predetermined overhead rate

XYZ company manufactures chemicals used in radiological imaging systems. The company had originally used machine hours as the cost driver to develop one predetermined overhead rate.

You have been recently hired by this company to review the costing of chemicals and realize that maybe a predetermined overhead rate does not give an accurate cost picture.

Discuss overhead cost issues want to implement ABC, so you have done some research and come up with the following activity cost pools and cost drivers.

Activity cost Pool	Budgeted Overhead Cost	Cost driver	Budgeted Level for cost Driver
Material handling	20,000	Weight of raw materials in pounds	80,000
Hazardous waste control	30,000	Weight of hazardous chemical used in pounds	10,000
Other overhead costs	400,000	Machine hours	50,000
Total Budgeted overhead cost	$450,000

Required:

1. Using the information above calculate the single predetermined overhead rate this company is using based on machine hours as the cost driver.

2. If the company uses the ABC approach, what would be the pool rates for the activities you have identified above.

I have computed the first activity pool rate above in column E and you should compute the remainder of the rates for the other 2 activities.

3. An order for radiological development chemicals has the following production requirements:

Material handling	1000	Raw material in pounds
Hazardous waste control	600	Hazardous Chemical used in pounds
Other overhead costs	1500	Machine hours

Write a short report that identifies factors that explain why the two product-costing systems result in differing costs.

Which system do you recommend? Why?

Part 2

Explanation of multiple regression, simple regression, and the scattergraph.

Food services company is looking at the costs involved with their catering services.

In the past, the company has used meals produced as the cost driver for Overhead costs, but you have been recently hired as a consultant and have decided to use your new MBA skills to make a recommendation to management on what should be the cost driver(s) for overhead costs. You have decided to include number of deliveries in your analysis, too.

Month	Deliveries	Meals produced	Total Overhead Cost
1	1,340	12,690	$       69,094
2	1,180	11,980	64,927
3	1,050	10,950	60,332
4	930	10,280	57,953
5	840	9,020	55,984
6	780	8,130	53,119
7	700	7,540	52,706
8	630	6,980	53,874
9	680	8,930	53,445
10	760	9,800	54,869

Complete the following 4 Requirements:

1. Prepare 2 scattergraphs and 2 simple regression analyses***** to estimate the Overhead costs using each of the cost drivers above. Make sure you show the equation of the line and R-squared on each of your scattergraphs.

2. Prepare a multiple regression table the 2 independent variables-Deliveries and meals produced. Do not try to prepare a scattergraph, since you cannot make a chart with multiple X's.

Using the output from the multiple regression, give the equation to estimate overhead costs in terms of these 2 cost drivers. Excel reads left to right, so X1 will be Deliveries and X2 will be meals produced.

3. Assuming the following level of cost-driver volume, what is the estimated overhead cost using simple regression for each of the cost drivers and using multiple regression to estimate the cost of overhead? You should have 3 computations for this answer (you need to determine 2 since I have calculated the first one for you).

Your calculation should only use cell references. You should use the applicable regression table to estimate the cost by referencing the cost drivers below and the output from the applicable regression table.

4. Using the simple and multiple regression analyses above, what would you recommend to estimate the Overhead Costs? Why? Make sure you discuss the Coefficient of Determination in your response. Your comments should be at least 75 words.