Reference no: EM131104922

See your Schedule and Requirements document for the due date. Put your answer underneath each question. You may either type your answers or write them neatly and scan your document. With respect to the plots of the regression lines, you may present your answer in any reasonable way you choose (Excel, by hand, etc.). However, the regression plots must be neat and if I cannot read the writing, I cannot give credit. Submit your file(s) through the Homework Assignments link
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:

Manufacturing Machine Number of Month Overhead Costs Hours 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?