Cortez Company is planning to introduce a new product that will sell for $108 per unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year: Direct materials $ 800,000 Direct labor 800,000 (= $16 per hour × 50,000 hours) Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product. Simple Regression Analysis Results Dependent variable—Factory overhead costs Independent variable—Direct labor-hours Computed values Intercept $ 120,000 Coefficient on independent variable $ 5.00 Coefficient of correlation .917 R2 .841 Required: a. What percentage of the variation in overhead costs is explained by the independent variable? a. 84.10% b. 92.50% c. 100.90% d. 75.70% e. None of the above b. What is the total overhead cost for an estimated activity level of 70,000 direct labor-hours? a. $470,000 b. $480,000 c. $460,000 d. $490,000 e. None of the above c. How much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)? a. $93.00 b. $102.00 c. $112.00 d. $84.00 e. None of the above

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter9: Evaluating Variances From Standard Costs

Section: Chapter Questions

Problem 25E: Lowell Manufacturing Inc. has a normal selling price of 20 per unit and has been selling 125,000...

See similar textbooks

Related questions

Question

Cortez Company is planning to introduce a new product that will sell for $108 per unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year:


Direct materials	$	800,000
Direct labor		800,000	(= $16 per hour × 50,000 hours)

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product.

Simple Regression Analysis Results
Dependent variable—Factory overhead costs
Independent variable—Direct labor-hours
Computed values
Intercept	$	120,000
Coefficient on independent variable	$	5.00
Coefficient of correlation		.917
R²		.841

Required:

a. What percentage of the variation in overhead costs is explained by the independent variable?

a. 84.10%

b. 92.50%

c. 100.90%

d. 75.70%

e. None of the above

b. What is the total overhead cost for an estimated activity level of 70,000 direct labor-hours?

a. $470,000

b. $480,000

c. $460,000

d. $490,000

e. None of the above

c. How much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)?

a. $93.00

b. $102.00

c. $112.00

d. $84.00

e. None of the above

d. What is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.)

a. $15.00

b. $17.00

c. $18.00

d. $14.00

e. None of the above

e. What is the manufacturing cost equation implied by these results?

a. Total cost = $800,000 + ($5.00 × Number of units)

b. Total cost = $120,000 + ($108.00 × Number of units)

c. Total cost = $120,000 + ($16.00 × Number of units)

d. None of the above

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions