# Assessment 2: applying cost accounting concepts to analyze and

Complete a three-part assessment in a supplied Excel template in which you apply regression analysis to decision making, determine unit costs, and analyze overhead using a predetermined rate.

Introduction

Cost estimation involves the use of a familiar accounting and finance tool: cost/benefit analysis. Through cost/benefit analysis, managers can explore and evaluate multiple alternatives to choose the one most beneficial to the organization’s bottom line. When evaluating alternatives, it is imperative that comparisons are “apples to apples;” that is, when estimating costs across multiple alternatives, cost data must be expressed in terms of variable and fixed costs, along with the drivers of these costs.

In Assessment 2, you will present information about estimating costs using multiple analysis methods, such as account analysis, statistical analysis, and regression output. Upon completion of this assessment, you will have demonstrated an understanding of the role that cost estimation plays in capturing and using existing accounting information for decision making by managers.

This assessment includes alternative cost systems, beginning with product and service costs.

Before beginning this assessment, take time to review the following topics:

Regression analysis.

Operations costing.

Complete a three-part assessment in a supplied Excel template, applying regression analysis to decision making, determining unit costs, and analyzing overhead using a predetermined overhead rate.

Preparation

Use the Assessment 2 Template [XLSX] to complete the following. Each part is a different tab in the template.

Part 1: In the template, interpret regression results from the delivery company.

Compare your estimates to the controller’s estimates and state your reasons for supporting or rejecting your cost equation.

Write a one-page report informing management of the correct volume that will generate \$11,000 per month in operating profits before taxes.

Show all calculations.

Part 2: Compute the cost per unit of the two different models of calculators produced by Nevada Instruments based on the operations costing. Show all calculations.

Part 3: Complete calculations and analysis of overhead using a predetermined rate for Atchison Company. Show all calculations.

Submit the completed template for Assessment 2.﻿

Instructions

Assessment 2 Part 1: Interpretation of Regression Results

Part 1 Scenario

Your company provides various delivery services. Management wants to know the volume of a particular delivery that would generate \$11,000 per month in operating profits before taxes. The company charges \$22 per delivery.

The controller’s office has estimated overhead costs at \$9,900 per month for fixed costs and \$12 per delivery for variable costs. You believe that the company should use regression analysis. Your analysis shows the results to be:

Your estimate was based on the following data:

Data Used for Estimate

Month

Number of Deliveries

1

\$159,630

\$12,510

2

\$183,990

\$15,060

3

\$142,860

\$11,430

4

\$194,430

\$15,450

5

\$151,890

\$12,180

6

\$150,120

\$11,970

7

\$192,600

\$15,660

8

\$154,080

\$12,630

9

\$141,030

\$11,250

10

\$184,800

\$15,300

11

\$203,490

\$12,780

12

\$183,120

\$14,580

13

\$180,630

\$14,730

Complete the following:

The company controller is somewhat surprised that your cost estimates differ so greatly from the controller’s estimates. You have been asked to recheck your work and see if you can figure out why.

Analyze the data and your results and state your reasons for supporting or rejecting your cost equation. Show all calculations.

Write a one-page report informing management of the correct volume that will generate \$11,000 per month in operating profits before taxes. The report should include an introduction, operating cost summary, proposed volume to generate desired operating profits before taxes, and a conclusion.﻿

Assessment 2 Part 2: Operations Costing

Compute the cost per unit of the two different models of calculators produced by Nevada Instruments based on the operations costing. Show all calculations.

Part 2 Scenario﻿

Nevada Instruments manufactures two models of calculators. The finance model is the Financial 5 and the scientific model is the Scientific 6. Both models are assembled in the same plant and require the same assembly operations. The difference between the models is in the cost of the parts.

The following data are available for August:

Financial 5

Scientific 6

Total

Number of Units

11,000

44,000

55,000

Parts Cost Per Unit

\$25

\$30

Other Costs:

Direct Labor

\$68,200

Indirect Materials

\$19,250

\$17,550

Total

\$165,000

Complete the following:

Nevada Instruments uses operations costing and assigns conversion costs based on the number of units assembled. Compute the cost per unit of the Financial 5 and Scientific 6 models for August. Show all calculations.

Assessment 2 Part 3: Analysis of Overhead Using a Predetermined Rate

Complete calculations and analysis of overhead using a predetermined rate for Atchison Company. Show all calculations.

Part 3 Scenario﻿

Atchison Company uses a job costing accounting system for its production costs. The company uses a predetermined overhead rate based on direct labor-hours to apply overhead to individual jobs. The company prepared an estimate of overhead costs at different volumes for the current year as follows:

Atchison Company: Estimate of Overhead Costs

Item

Volume 1

Volume 2

Volume 3

Direct Labor-Hours

150,000

180,000

210,000

\$1,155,000

\$1,386,000

\$1,617,000

\$712,800

\$712,800

\$712,800

\$1,867,800

\$2,098,800

\$2,329,800

The expected volume is 180,000 direct labor-hours for the entire year. The following information is for September, when Jobs 6023 and 6024 were completed:

Atchison Company: September Data

Item

Value

Inventories, September 1:

Materials and Supplies

\$31,500

Work in Process (Job 6023)

\$162,000

Finished Goods

\$337,500

Material and Supply Purchases:

Materials

\$445,500

Supplies

\$49,500

Materials and Supplies Requisitioned for Production:

Job 6023

\$148,500

Job 6024

\$123,750

Job 6025

\$84,150

Supplies

\$19,800

\$376,200

Factory Direct Labor-Hours (DLH):

Job 6023

\$10,500

Job 6024

\$9,000

Job 6025

\$6,000

Labor Costs:

Direct Labor Wages (all hours @ \$9)

\$229,500

Indirect Labor Wages (12,000 hours)

\$51,000

Supervisor Salaries

\$118,800

Building Occupancy Costs (heat, light, depreciation, etc.):

Factory Facilities

\$21,450

\$8,250

Factory Equipment Costs:

Power

\$13,200

Repairs and Maintenance

\$4,950

Other

\$8,250

\$26,400

Complete the following:

Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.

(Note: Regardless of your answer to #1, assume that the predetermined overhead rate is \$10 per direct labor-hour. Use this amount in answering items 2–6.)

Compute the total cost of Job 6023 when it is finished.

How much factory overhead cost was applied to Job 6025 during September?

What total amount of overhead was applied to jobs during September?

Compute actual factory overhead incurred during September.

At the end of the year, Atchison Company had the following account balances:

Atchison Company: Account Balances

Item

Value

\$3,300

Cost of Goods Sold

\$3,234,000

Work-in-Process Inventory

\$125,400

Finished Goods Inventory

\$270,600

How would you recommend treating the overapplied overhead, assuming that it is not material? Show the new account balances in the following table:

Atchison Company: New Account Balances

Item

Value

Cost of Goods Sold

Work-in-Process Inventory

Finished Goods Inventory

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:

Competency 2: Apply cost accounting concepts to analyze and estimate costs.

Explain justification for supporting cost equation.

Determine cost per unit.

Competency 5: ﻿Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.

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