Question: Bob Jones owns a catering company that
Bob Jones owns a catering company that prepares food and beverages for banquets and parties. For a standard party the cost on a per-person basis is as follows:
Jones is quite certain about his estimates of the food, beverages, and labor costs but is not as comfortable with the overhead estimate. The overhead estimate was based on the actual data for the past 12 months, which are presented here. These data indicate that overhead costs vary with the direct labor-hours used. The $14 estimate was determined by dividing total overhead costs for the 12 months by total labor-hours.
Jones has recently become aware of regression analysis. He estimated the following regression equation with overhead costs as the dependent variable and labor-hours as the independent variable:
Required:
1. Plot the relationship between overhead costs and labor-hours. Draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
2. Using data from the regression analysis, what is the variable cost per person for a standard party?
3. Bob Jones has been asked to prepare a bid for a 200-person standard party to be given next month. Determine the minimum bid price that Jones would be willing to submit to recoup variable costs.
Transcribed Image Text:
Food and beverages Labor (0.5 hour X $10 per hour) Overhead (0.5 hour × $14 per hour) Total cost per person $15 $27 Month Labor-Hours Overhead Costs January 2,500 $ 55,000 February 2,700 59,000 March 3,000 60,000 April May 4,200 64,000 7,500 000 ,רר June 5,500 71,000 July 6,500 74,000 August September 4,500 67,000 7,000 75,000 October 4,500 68,000 November 3,100 62,000 December 6,500 73,000 Total 57,500 $805,000 y = $48,271 + $3.93X
> Instant Service (IS) repairs printers and photocopiers for five multisite companies in a tristate area. IS’s costs consist of the cost of technicians and equipment that are directly traceable to the customer site and a pool of office ov
> Garnicki Foods makes frozen dinners that it sells through grocery stores. Typical products include turkey dinners, pot roast, fried chicken, and meat loaf. The managers at Garnicki have recently introduced a line of frozen chicken pies. They take the fol
> Orsack Electronics has only two retail and two whole sale customers. Information relating to each customer for 2012 follows (in thousands): Orsack’s annual distribution-channel costs are $34 million for wholesale customers and $5 mill
> Lenzig Corporation has three divisions: pulp, paper, and fibers. Lenzig’s new controller, Ari Bardem, is reviewing the allocation of fixed corporate-overhead costs to the three divisions. He is presented with the following information f
> Rembrandt Hotel & Casino is situated on beautiful Lake Tahoe in Nevada. The complex includes a 300-room hotel, a casino, and a restaurant. As Rembrandt’s new controller, you are asked to recommend the basis to be used for allocating
> Green bold Manufacturing has four divisions named after its locations: Arizona, Colorado, Delaware, and Florida. Corporate headquarters is in Minnesota. Green bold corporate headquarters incurs $5,600,000 per period, which is an indirect cost of the divi
> Dave Meltzer vacationed at Lake Tahoe last winter. Unfortunately, he broke his ankle while skiing and spent two days at the Sierra University Hospital. Meltzer’s insurance company received a $4,800 bill for his two-day stay. One item th
> Refer to Exercise 13-26. Required: 1. Calculate the amount and cost of unused software-implementation support capacity at the beginning of 2011, based on the number of jobs actually done in 2011. 2. Suppose Westlake can add or reduce its software-implem
> Suppose that during 2011 the market for implementing sales-management software increases by 5%. Assume that any decrease in selling price and any increase in market share more than 5% are the result of strategic choices by Westlake‘s management to implem
> Refer to Exercise 13-26. Required: 1. Calculate the operating income of Westlake Corporation in 2010 and 2011. 2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2010 to 2011. 3. Comment
> Westlake Corporation is a small information systems consulting firm that specializes in helping companies implement standard sales-management software. The market for Westlake’s services is very competitive. To compete successfully, Wes
> Refer to Exercise 13-22. Required: 1. Calculate the amount and cost of (a) unused manufacturing capacity and (b) unused selling and customer-service capacity at the beginning of 2011 based on actual production and actual number of customers served in 20
> Conner Company makes and sells brooms and mops. It takes the following actions, not necessarily in the order given. For each action (a–e) state whether it is a planning decision or a control decision. a. Conner asks its marketing team to consider ways to
> Suppose that during 2011, the market for Stanmore’s special-purpose machines grew by 3%. All increases in market share (that is, sales increases greater than 3%) are the result of Stanmore’s strategic actions. Required: Calculate how much of the change
> Refer to Exercise 13-22. Required: 1. Calculate the operating income of Stanmore Corporation in 2010 and 2011. 2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2010 to 2011. 3. Commen
> Stanmore Corporation makes a special-purpose machine, D4H, used in the textile industry. Stanmore has designed the D4H machine for 2011 to be distinct from its competitors. It has been generally regarded as a superior machine. Stanmore presents the follo
> Refer to Exercise 13-18. Required: 1. Calculate the amount and cost of unused administrative capacity at the beginning of 2011, based on the actual number of customers Roberto served in 2011. 2. Suppose Roberto can only add or reduce administrative capa
> Refer to Exercise 13-19. Suppose that the market for silk-screened T-shirts grew by 10% during 2011. All increases in sales greater than 10% are the result of Roberto’s strategic actions. Required: Calculate the change in operating inc
> Refer to Exercise 13-18. Required: 1. Calculate Roberto‘s operating income in both 2010 and 2011. 2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2010 to 2011. 3. Co
> Roberto & Sons buys T-shirts in bulk, applies its own trendsetting silk-screen designs, and then sells the T-shirts to a number of retailers. Roberto wants to be known for its trendsetting designs, and it wants every teenager to be seen in a distinct
> An analysis of Ridgecrest’s operating-income changes between 2011 and 2012 shows the following: The industry market size for corrugated cardboard boxes did not grow in 2012, input prices did not change, and Ridgecrest reduced the pric
> Ridgecrest Corporation manufactures corrugated cardboard boxes. It competes and plans to grow by selling high-quality boxes at a low price and by delivering them to customers quickly after receiving customers’ orders. There are many oth
> Gadzooks, Inc., develops and manufactures toys that it then sells through infomercials. Currently, the company is designing a toy robot that it intends to begin manufacturing and marketing next year. Because of the rapidly changing nature of the toy indu
> Grey Brothers Consulting has issued a report recommending changes for its newest manufacturing client, Energy Motors. Energy Motors currently manufactures a single product, which is sold and distributed nationally. The report contains the following sugge
> Road Warrior manufactures and sells a model of motorcycle, XR500. In 2011, it reported the following: Required: 1. What was Road Warrior’s operating income on XR500 in 2011? What was the full cost per unit? What was the selling price?
> John Blodgett is the managing partner of a business that has just finished building a 60-room motel. Blodgett anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same
> Medical Instruments uses a manufacturing costing system with one direct-cost category (direct materials) and three indirect-cost categories: a. Setup, production order, and materials-handling costs that vary with the number of batches b. Manufacturing-op
> Snappy Tiles is a small distributor of marble tiles. Snappy identifies its three major activities and cost pools as ordering, receiving and storage, and shipping, and it reports the following details for 2011: For 2011, Snappy buys 250,000 marble tiles
> Calvert Associates prepares architectural drawings to conform to local structural-safety codes. Its income statement for 2012 is as follows: Following is the percentage of time spent by professional staff on various activities: Assume administrative
> The Marino Repair Shop repairs and services machine tools. A summary of its costs (by activity) for 2011 is as follows: Required: 1. Classify each cost as value-added, nonvalue-added, or in the gray area between. 2. For any cost classified in the gray
> Colorado Mountains Dairy, maker of specialty cheeses, produces a soft cheese from the milk of Holstein cows raised on a special corn-based diet. One kilogram of soft cheese, which has a contribution margin of $10, requires 4 liters of milk. A well-known
> The San Carlos Company is an electronics business with eight product lines. Income data for one of the products (XT-107) for June 2011 are as follows: Abrams, Inc., an instruments company, has a problem with its preferred supplier of XT-107. This suppl
> The following financial data apply to the DVD production plant of the Dill Company for October 2011: Variable manufacturing overhead varies with the number of DVD packs produced. Fixed manufacturing overhead of $1 per pack is based on budgeted fixed ma
> The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production equipment, purchased for $1,800,000 and with a five-year useful life, is only two years old. It has a terminal disposal
> Burger King, a hamburger fast food restaurant, incurs the following costs: a. Cost of oil for the deep fryer b. Wages of the counter help who give customers the food they order c. Cost of the costume for the King on the Burger King television commercials
> Sanchez Corporation runs two convenience stores, one in Connecticut and one in Rhode Island. Operating income for each store in 2012 is as follows: The equipment has a zero disposal value. In a senior management meeting, Maria Lopez, the management acc
> Fair Lakes Hospital Corporation has been operating ambulatory surgery centers in Groveton and Stockdale, two small communities each about an hour away from its main hospital. As a cost control measure the hospital has decided that it needs only one of th
> Body-Builders, Inc., produces two basic types of weightlifting equipment, Model 9 and Model 14. Pertinent data are as follows: The weight-lifting craze is such that enough of either Model 9 or Model 14 can be sold to keep the plant operating at full ca
> The Seashore Stand is a take-out food store at a popular beach resort. Susan Sexton, owner of the Seashore Stand, is deciding how much refrigerator space to devote to four different drinks. Pertinent data on these four drinks are as follows: Sexton has
> Lawn World, a manufacturer of lawn mowers, predicts that it will purchase 264,000 spark plugs next year. Lawn World estimates that 22,000 spark plugs will be required each month. A supplier quotes a price of $7 per spark plug. The supplier also offers a
> The Svenson Corporation manufactures cellular modems. It manufactures its own cellular modem circuit boards (CMCB), an important part of the cellular modem. It reports the following cost information about the costs of making CMCBs in 2011 and the expecte
> The Award Plus Company manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month. Current production and sales are 7,500 medals per month. The company normally char
> Choose the best answer. 1. The Woody Company manufactures slippers and sells them at $10 a pair. Variable manufacturing cost is $4.50 a pair, and allocated fixed manufacturing cost is $1.50 a pair. It has enough idle capacity available to accept a one-ti
> Answer the following questions. 1. DeCesare Computers makes 5,200 units of a circuit board, CB76 at a cost of $280 each. Variable cost per unit is $190 and fixed cost per unit is $90. Peach Electronics offers to supply 5,200 units of CB76 for $260. If De
> Answer the following questions. 1. A company has an inventory of 1,100 assorted parts for a line of missiles that has been discontinued. The inventory cost is $78,000. The parts can be either (a) re machined at total additional costs of $24,500 and then
> Merck, a pharmaceutical company, incurs the following costs: a. Cost of redesigning blister packs to make drug containers more tamperproof b. Cost of videos sent to doctors to promote sales of a new drug c. Cost of a toll-free telephone line used for cus
> Assume the same information for Global Defense as in Exercise 10-29, except that Global Defense uses an 85% incremental unit-time learning model as a basis for predicting direct manufacturing labor-hours. (An 85% learning curve means b = â€
> 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: Required: Calculate the total variable costs of producing 2, 4, and 8 units. Home I
> 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 quant
> Goldstein Corporation manufactures a children’s bicycle, model CT 8. Goldstein currently manufactures the bicycle frame. During 2012, Goldstein made 32,000frames at a total cost of $1,056,000. Ryan Corporation has offered to supply as m
> Terry Lawler, managing director of the Chicago Reviewers Group, is examining how overhead costs behave with changes in monthly professional labor-hours billed to clients. Assume the following historical data: Required: 1. Compute the linear cost functi
> Laurie Daley is examining customer-service costs in the southern region of Capitol Products. Capitol Products has more than 200 separate electrical products that are sold with a six-month guarantee of full repair or replacement with a new product. When a
> Gower, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2012. Gower, Inc., produced 75,000 units of product in 2012. Gower’s manage
> Java Joe Coffees wants to find an equation to estimate monthly utility costs. Java Joe’s has been in business for one year and has collected the following cost data for utilities: Required: 1. Which of the preceding costs is variable?
> Lorenzo operates a car wash. Incoming cars are put on an automatic conveyor belt. Cars are washed as the conveyor belt carries them from the start station to the finish station. After a car moves off the conveyor belt, it is dried manually. Workers then
> Compaq Computer incurs the following costs: a. Electricity costs for the plant assembling the Presario computer line of products b. Transportation costs for shipping the Presario line of products to a retail chain c. Payment to David Kelley Designs for d
> The Pacific Corporation operates car rental agencies at more than 20 airports. Customers can choose from one of three 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 Contr
> Mega-Air, Inc., manufactures a specialized snowboard made for the advanced snowboarder. Mega-Air began 2011 with an inventory of 240 snowboards. During the year, it produced 900 boards and sold 995 for $750 each. Fixed production costs were $280,000 and
> Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominator-level concept to use. The G36 motorcycles sell for an average price of $8,
> Helmetsmart, a three year-old company, has been producing and selling a single type of bicycle helmet. Helmetsmart uses standard costing. After reviewing the income statements for the first three years, Stuart Weil, president of Helmetsmart, commented, &
> The Rehe Company sells its razors at $3 per unit. The company uses a first-in, first-out actual costing system. A fixed manufacturing cost rate is computed at the end of each year by dividing the actual fixed manufacturing costs by the actual production
> Grunewald Company manufacturers a professional grade vacuum cleaner and began operations in 2011. For 2011, Grunewald budgeted to produce and sell 20,000units. The company had no price, spending, or efficiency variances, and writes off production-volume
> Osawa, Inc., planned and actually manufactured 200,000units of its single product in 2012, its first year of operation. Variable manufacturing cost was $20 per unit produced. Variable operating (nonmanufacturing) cost was $10 per unit sold. Planned and a
> The Zwatch Company manufactures trendy, high-quality moderately priced watches. As Zwatch’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Zwatchâ
> The variable manufacturing costs per unit of BigScreen Corporation are as follows: Required: 1. Prepare income statements for BigScreen in January, February, and March of 2012 under throughput costing. 2. Contrast the results in requirement 1 with thos
> BigScreen Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March of 2012 are as follows: The selling price per unit is $2,500. The budgeted level of production used to
> Benchmarking against other companies enables a company to identify the lowest-cost producer. This amount should become the performance measure for next year.” Do you agree?
> The variable manufacturing costs per unit of Nascar Motors are as follows: Required: 1. Prepare income statements for Nascar Motors in April and May of 2011 under throughput costing. 2. Contrast the results in requirement 1 with those in requirement 1
> Nascar Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2011 are as follows: The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted fixed manuf
> David James is a cost accountant and business analyst for Doorknob Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct cost categories: direct materials and direct manufacturing labor. James feels that manufacturing ov
> Purdue, Inc., manufactures tires for large auto companies. It uses standard costing and allocates variable and fixed manufacturing overhead based on machine-hours. For each independent scenario given, indicate whether each of the manufacturing variances
> Dvent budgets 18,000 machine-hours for the production of computer chips in August 2011. The budgeted variable overhead rate is $6 per machine hour. At the end of August, there is a $375 favorable spending variance for variable overhead and a $1,575 unfav
> Furniture, Inc., specializes in the production of futons. It uses standard costing and flexible budgets to account for the production of a new line of futons. For 2011, budgeted variable overhead at a level of 3,600 standard monthly direct labor-hours wa
> Meals on Wheels (MOW) operates a meal home-delivery service. It has agreements with 20 restaurants to pick up and deliver meals to customers who phone or fax orders to MOW. MOW allocates variable and fixed overhead costs on the basis of delivery time. MO
> The Singapore division of a Canadian telecommunications company uses standard costing for its machine-paced production of telephone equipment. Data regarding production during June are as follows: Required: 1. Prepare an analysis of all manufacturing o
> Rozema, Inc., produces chemicals for large biotech companies. It has the following data for manufacturing overhead costs during August 2013: Use F for favorable and U for unfavorable: Variable Fixed $31,000 Actual costs incurred Costs allocated to
> The Solutions Corporation is a manufacturer of centrifuges. Fixed and variable manufacturing overheads are allocated to each centrifuge using budgeted assembly-hours. Budgeted assembly time is two hours per unit. The following table shows the budgeted am
> Increasing the number of indirect-cost pools is guaranteed to sizably increase the accuracy of product or service costs.” Do you agree? Why?
> Explain the term “supply chain” and its importance to cost management.
> Solarpower Systems expects to earn $20 per share this year and intends to pay out $8 in dividends to shareholders and retain $12 to invest in new projects with an expected return on equity of 20 percent. In the future, Solarpower expects to maintain the
> Temple-Midland, Inc., is issuing a $1,000 par value bond that pays 8 percent annual interest and matures in 15 years. Investors are willing to pay $950 for the bond, and Temple faces a tax rate of 35 percent. What is Temple’s after-tax cost of debt on th
> Falon Corporation is issuing new common stock at a market price of $28. Dividends last year were $1.30 and are expected to grow at an annual rate of 7 percent forever. What is Falon’s cost of common equity capital?
> The Boston Brewery Corporation is a craft brewer of premium beers. The firm is planning on issuing common stock at a market price of $13 a share. Last year the firm paid an annual dividend of $1.45, and analysts expect the firm’s future dividends will gr
> Compute the cost of capital for the firm for the following: a. Currently, new bond issues with a credit rating and maturity similar to those of the firm’s outstanding debt are selling to yield 8 percent, while the borrowing firm’s corporate tax rate is 3
> You have just been hired to compute the cost of capital for debt, preferred stock, and common stock for the Mindflex Corporation. a. Cost of debt: Because Mindflex’s bonds do not trade very frequently, you have decided to use 7 percent as your cost of de
> Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a. A bond that has a $1,000 par value (face value) and a con
> Two-Foot Tools, Inc., sells and distributes work footwear and other clothing for people who work under extreme cold conditions such as in the Arctic or Antarctica. The company recently borrowed $10 million net of issuance costs equal to 1.5 percent of th
> The Pandora Internet Radio Company was started in 2000 to provide a personalized radio listening experience over your computer or iPhone and is privately owned. However, its success could easily lead its owners to take the company public with the sale of
> Compute the cost of capital for each of the following sources of financing: a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11 percent. Interest payments are $55.00 and are paid semiannually. The bond has a cu
> The Faraway Moving Company is involved in a major plant expansion that requires the expenditure of $200 million in the coming year. The firm plans on financing the expansion by retaining $150 million in firm earnings and borrowing the remaining $50 milli
> The Callaway Cattle Company is considering the construction of a new feed-handling system for its feedlot in Abilene, Kansas. The new system will provide annual labor savings and reduced waste totaling $200,000, and the initial investment will be only $5
> You are working as a consultant to the Lulu Athletic Clothing Company, and you have been asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new warehouse facility. You have determined the market value of the fi
> You are working in the Finance Department of Ranch Manufacturing, and your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm&
> Bane Industries has a capital structure consisting of 60 percent common stock and 40 percent debt. The firm’s investment banker has advised the firm that debt issued with a $1,000 par value, an 8 percent coupon (with interest paid semiannually), and a 20
> The target capital structure for J&J Manufacturing is 50 percent common stock, 15 percent preferred stock, and 35 percent debt. If the cost of common equity for the firm is 15 percent, the cost of preferred stock is 9 percent, and the before-tax cost of
> Crypton Electronics has a capital structure consisting of 40 percent common stock and 60 percent debt. A debt issue of $1,000 par value, 6 percent bonds that mature in 15 years and pay annual interest will sell for $975. Common stock of the firm is curre
> In the spring of last year, the management of the Silver Steel Company learned that the firm would need to reevaluate the company’s weighted average cost of capital following a significant issue of debt. The firm now has financed 40 percent of its assets
> The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt. If the cost of common equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is
> Tellington Inc. recently discussed issuing a 10-yearmaturity bond with the firm’s investment banker. The firm was advised that it would have to pay 8 to 9 percent on the bonds. Using Figure 14.3, what does this rate suggest to you about
> Waygone Industries is planning on issuing 30-year bonds that will be rated AA. Use Figure 14.3 to estimate the yield to maturity on the bond issue. What is the spread to Treasury for the debt issue in basis points? Figure 14.3: Rating 1 year 2 year
