Cost Accounting (14th Edition)

10-28 High-low, regression. Melissa Crupp is the new manager of the materials storeroom for
Canton Manufacturing. Melissa has been asked to estimate future monthly purchase costs for
part #4599, used in two of Canton’s products. Melissa has purchase cost and quantity data for the past
nine months as follows:
ASSIGNMENT MATERIAL 381
Month Cost of Purchase Quantity Purchased
January $10,390 2,250 parts
February 10,550 2,350
March 14,400 3,390
April 13,180 3,120
May 10,970 2,490
June 11,580 2,680
July 12,690 3,030
August 8,560 1,930
September 12,450 2,960
Estimated monthly purchases for this part based on expected demand of the two products for the rest of the
year are as follows:
Month Purchase Quantity Expected
October
2,800 parts
November 3,100
December 2,500
1. The computer in Melissa’s office is down and Melissa has been asked to immediately provide an equation
to estimate the future purchase cost for part # 4599. Melissa grabs a calculator and uses the highlow
method to estimate a cost equation. What equation does she get?
2. Using the equation from requirement 1, calculate the future expected purchase costs for each of the
last three months of the year.
3. After a few hours Melissa’s computer is fixed. Melissa uses the first nine months of data and regression
analysis to estimate the relationship between the quantity purchased and purchase costs of
part #4599. The regression line Melissa obtains is as follows:
Required
y = $1,779.6 + 3.67X
Evaluate the regression line using the criteria of economic plausibility, goodness of fit, and significance
of the independent variable. Compare the regression equation to the equation based on the high-low
method. Which is a better fit? Why?
4. Use the regression results to calculate the expected purchase costs for October, November, and
December. Compare the expected purchase costs to the expected purchase costs calculated using
the high-low method in requirement 2. Comment on your results.
10-29 Learning curve, cumulative average-time learning model. Global Defense manufactures radar
systems. It has just completed the manufacture of its first newly designed system, RS-32. Manufacturing
data for the RS-32 follow:
per radar system
A
B
C
1
2
3
Direct material cost
Direct manufacturing labor time for first unit
Learning curve for manufacturing labor time
$160,000 per unit of RS-32
6,000 direct manufacturing labor-hours
85% cumulative average time a
4 Direct manufacturing labor cost
$ 30 per direct manufacturing labor-hour
5 Variable manufacturing overhead cost
$ 20 per direct manufacturing labor-hour
6
7
ln 0.85 –0.162519
Using the formula (p. 359), for a 85% learning curve, b =
ln 2
=
0.693147
= –0.234465
8