Landis Company uses a job-order costing system with a predetermined plantwide overhead rate based on direct labor-hours. In an effort to improve its ability to measure job profitability and make decisions, the company is considering allocating some of its overhead costs, such as electrical costs, based on machine-hours instead of direct labor-hours. To further explore the potential benefits of this approach, the company has gathered the following eight weeks of actual (not estimated) data with respect to its electrical costs: Machine-Hours Direct Labor-Hours Electrical Costs Week 1 7,700 8,910 76,200 Week 2 8,900 8,920 83,800 Week 3 8,600 8,870 81,000 Week 4 8,100 8,840 80,800 Week 5 7,600 8,990 79,400 Week 6 7,100 8,940 70,700 Week 7 5,500 8,870 61,500 Week 8 6,800 8,910 73,900 Total 60,300 71,250 607,300 Using the data above, the company translated these actual amounts into annual estimates as follows: Machine-Hours Direct Labor-Hours Electrical Costs Total for eight weeks (a) 60,300 71,250 607,300 52 weeks ÷ 8 weeks (b) 6.5 6.5 6.5 Annual estimate (a) × (b) 391,950 463,125 3,947,450 Excel is the first table without the total. 1. Using the annualized data, what is the estimated electrical cost per direct labor-hour? 2. Using the annualized data, what is the estimated electrical cost per machine-hour? 3. Assume that the company plans to bid on Job Q400 that would require 270 direct labor-hours and 350 machine-hours. 3- A) How much electrical cost would be allocated to Job Q400 using the estimated electrical cost per direct labor-hour from requirement 1? 3-B) How much electrical cost would be allocated to Job Q400 using the estimated electrical cost per machine-hour from requirement 2?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Landis Company uses a job-order costing system with a predetermined plantwide overhead rate based on direct labor-hours. In an effort to improve its ability to measure job profitability and make decisions, the company is considering allocating some of its overhead costs, such as electrical costs, based on machine-hours instead of direct labor-hours. To further explore the potential benefits of this approach, the company has gathered the following eight weeks of actual (not estimated) data with respect to its electrical costs:
| Machine-Hours | Direct Labor-Hours | Electrical Costs | |||||||
| Week 1 |
7,700 |
8,910 | 76,200 | ||||||
| Week 2 | 8,900 | 8,920 | 83,800 | ||||||
| Week 3 | 8,600 | 8,870 | 81,000 | ||||||
| Week 4 | 8,100 | 8,840 | 80,800 | ||||||
| Week 5 | 7,600 | 8,990 | 79,400 | ||||||
| Week 6 | 7,100 | 8,940 | 70,700 | ||||||
| Week 7 | 5,500 | 8,870 | 61,500 | ||||||
| Week 8 | 6,800 | 8,910 | 73,900 | ||||||
| Total | 60,300 | 71,250 | 607,300 | ||||||
Using the data above, the company translated these actual amounts into annual estimates as follows:
| Machine-Hours | Direct Labor-Hours | Electrical Costs | |||||||
| Total for eight weeks (a) | 60,300 | 71,250 | 607,300 | ||||||
| 52 weeks ÷ 8 weeks (b) | 6.5 | 6.5 | 6.5 | ||||||
| Annual estimate (a) × (b) | 391,950 | 463,125 | 3,947,450 | ||||||
Excel is the first table without the total.
1. Using the annualized data, what is the estimated electrical cost per direct labor-hour?
2. Using the annualized data, what is the estimated electrical cost per machine-hour?
3. Assume that the company plans to bid on Job Q400 that would require 270 direct labor-hours and 350 machine-hours.
3- A) How much electrical cost would be allocated to Job Q400 using the estimated electrical cost per direct labor-hour from requirement 1?
3-B) How much electrical cost would be allocated to Job Q400 using the estimated electrical cost per machine-hour from requirement 2?
4. Refer to the eight weeks of actual data included in the Excel template.
4-A) Use Excel to prepare a scattergraph plot with direct labor-hours on the horizontal axis and electrical costs on the vertical axis.
4-B) Use Excel to prepare a scattergraph plot with machine-hours on the horizontal axis and electrical costs on the vertical axis.
4-C) Which of the two allocation bases (direct labor-hours or machine-hours) appears to be the better choice for assigning electrical
5. Refer to the eight weeks of actual data included in the Excel template.
5-A) Use least-squares regression to estimate the fixed electrical cost per week and the variable electrical cost per machine-hour. (You can refer to Appendix 5A of the text for a brief illustration of the method being used to perform the regression computations.)
5-B) What is the R2 for the regression line in requirement 5a?
5-C) What does the R2 tell us?
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5. Refer to the eight weeks of actual data included in the Excel template.
5-A) Use least-squares regression to estimate the fixed electrical cost per week and the variable electrical cost per machine-hour. (You can refer to Appendix 5A of the text for a brief illustration of the method being used to perform the regression computations.)
5-B) What is the R2 for the regression line in requirement 5a?
5-C) What does the R2 tell us?
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