managerial accounting - assignment (2) - model answer
TRANSCRIPT
-
8/12/2019 Managerial Accounting - Assignment (2) - Model Answer
1/5
Deadline: May 6, 2014NOTE: Please note that we do not accept submissions after the deadline.Assignments must be submitted to (Assignment Link). Assignments are not accepted by email or any other mean.
Objectives of the Assignment: to determine how cost behave.
1- Estimating a cost function. The controller of Hegazy Company wants you to estimate acost function from the following two observations in a general ledger account calledMaintenance:
Month Machine-Hours Maintenance Costs Incurred
January 6,000 $4,000
February 10,000 5,400
Required:
A-Estimate the cost function for maintenance.B. Can the constant in the cost function be used as an estimate of fixed maintenance cost per
month? Explain.
2-Identifying variable-, fixed-, and mixed-cost functions.The Atlantic Corporation
operates car rental agencies at more than 20 airports. Customers can choose from one ofthree contracts for car rentals of one day or less: Contract 1: $50 for the day Contract 2: $30 for the day plus $0.20 per mile traveled Contract 3: $1 per mile traveled
Required:
1. Plot separate graphs for each of the three contracts, with costs on the vertical axis andmiles traveled on the horizontal axis.
2.Express each contract as a linear cost function of the form y = a + bX.3. Identify each contract as a variable-, fixed-, or mixed-cost function.
3-Estimating a cost function, high-low method: Dawood is examining customer-servicecosts in the southern region of Capitol Products. Capitol Products has more than 200 separateelectrical products that are sold with a 6-month guarantee of full repair or replacement with anew product. When a product is returned by a customer, a service report is prepared. Thisservice report includes details of the problem and the time and cost of resolving the problem.Weekly data for the most recent 10-week period are:
Faculty of Business Administration
Year:2013-2014 (Spring semester)Student name:.Student Code::.
Course Name: Managerial Accounting Assignment (2) Model Answer
Course code: ACC404Method of submission: Electronic.Instructor:Dr. Mohammad Almasry
Date: 30/4/2014
Time allowed: 30 Min
Marks: /10
-
8/12/2019 Managerial Accounting - Assignment (2) - Model Answer
2/5
Deadline: May 6, 2014NOTE: Please note that we do not accept submissions after the deadline.Assignments must be submitted to (Assignment Link). Assignments are not accepted by email or any other mean.
WeekCustomer-Service
Department Costs
Number of
Service Reports
1 $13,845 201
2 20,624 276
3 12,941 1224 18,452 386
5 14,843 274
6 21,890 436
7 16,831 321
8 21,429 328
9 18,267 243
10 16,832 161
Required:
1-Plot the relationship between customer-service costs and number of service reports. Is therelationship economically plausible?
2-.Use the high-low method to compute the cost function, relating customer-service costs tothe number of service reports.
3-What variables, in addition to number of service reports, might be cost drivers of monthlycustomerservice costs of Capitol Products?
-
8/12/2019 Managerial Accounting - Assignment (2) - Model Answer
3/5
Deadline: May 6, 2014NOTE: Please note that we do not accept submissions after the deadline.Assignments must be submitted to (Assignment Link). Assignments are not accepted by email or any other mean.
SOLUTION: (1)
1. Slope coefficient =Difference in costs
Difference in machine-hours
=
$5,400 $4,000
10,000 6,000
=$1, 400
4,000= $0.35 per machine-hour
Constant = Total cost (Slope coefficient Quantity of cost driver)
= $5,400($0.35 10,000) = $1,900
= $4,000($0.35 6,000) = $1,900
The cost function based on the two observations is
Maintenance costs = $1,900 + $0.35 Machine-hours
2. The cost function in requirement 1 is an estimate of how costs behave within therelevant range, not at cost levels outside the relevant range. If there are no months withzero machine-hours represented in the maintenance account, data in that account cannot
be used to estimate the fixed costs at the zero machine-hours level. Rather, the constantcomponent of the cost function provides the best available starting point for a straight
line that approximates how a cost behaves within the relevant range.
SOLUTION: (2)Plots of Car Rental Contracts Offered by Atlantic Corp.
-
8/12/2019 Managerial Accounting - Assignment (2) - Model Answer
4/5
Deadline: May 6, 2014NOTE: Please note that we do not accept submissions after the deadline.Assignments must be submitted to (Assignment Link). Assignments are not accepted by email or any other mean.
Ca
rRentalCosts
Miles Traveled per Day50 100 150
Car
RentalCosts
Miles Traveled per Day
50 100 150
CarRentalCosts
20
40
60
80
100
120
140
$160
Miles Traveled per Day50 100 150
Contract 1: Fixed Costs
Contract 2: M ixed Costs
Contract 3: Variable Costs
0
20
40
60
80
100
120
140
$160
0
0
0
0
2040
60
80
100
120
140
$160
0
SOLUTION: (3)
1. There is a positive relationship between the number of service reports (a cost driver)and the customer-service department costs. This relationship is economically plausible.
2. Number of Customer-ServiceService Reports Department Costs
Highest observation of cost driver 436 $21,890Lowest observation of cost driver 122 12,941Difference 314 $ 8,949Customer-service department costs = a + b(number of service reports)
-
8/12/2019 Managerial Accounting - Assignment (2) - Model Answer
5/5
Deadline: May 6, 2014NOTE: Please note that we do not accept submissions after the deadline.Assignments must be submitted to (Assignment Link). Assignments are not accepted by email or any other mean.
Slope coefficient (b) =314
$8,949= $28.50 per service report
Constant (a) = $21,890 $28.50 436 = $9,464= $12,941$28.50 122 = $9,464
Customer-service = $9,464 + $28.50 (number of service reports)department costs
3. Other possible cost drivers of customer-service department costs are:a. Number of products replaced with a new product (and the dollar value of the new
products charged to the customer-service department).b. Number of products repaired and the time and cost of repairs.