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Managerial Accounting Basics

Chapter 3 presents more basic cost accounting concepts and applications.  Based upon the readings from Chapter 3, answer the following.  (50 points)  (A 1-page response is required.)

• Complete a solution set for Fundamental Assignment Material Exercise 3-A1, “Activity Analysis” only (p. 106).
• Complete a solution set for Fundamental Assignment Material Exercise 3-A2, “Division of Mixed Costs into Variable and Fixed Components” (p. 106). Be sure to show how you arrive at all numerical figures and provide justification or rationale for your recommendations.

PART A

Question one:

The support cost= material costs x markup percentage

Sign A:

Sing B:

The support cost if using the fixed price of $70 for each tool assessment

Support cost is given by the number of power tool operations x 70

Sign A:

Sign B:

Therefore, the cost total is;

Sign A:

Sign B:

Based on the calculation, sign A has a lower support cost with a higher operating cost, while sign B has a higher support cost with a lower operating price.

Question two

Advice to Dogwood Signs about predicting support costs

There are two primary forms of support cost with the cost drivers that establish results substantially different from one another. Hence, the company should decide on a cost driver that is highly accurate in results. The firm is also required to study the cost drivers and the expenses that drive the cost more closely; hence they should use any cost driver to maintain the cost (Horngren et al., 2014). Currently, Dogwood Signs are forecasting a high cost linked to the firm’s operations through few power tools and a low cost of operations in which more tools are utilized. This could lead to the company losing jobs in operations in which fewer power tools are used to attain a huge number of jobs in tool operations. Therefore, Dogwood Signs could envisage the supporting costs much more accurately by utilizing an appropriate cost driver. This would promote better and informed decision-making with correct information and help in the associated charged price for the products more directly to the costs of manufacture.

PART B

Exercise 3-A2

Question 1:

The high-low method finds monthly fixed support and variable support costs per machine hour.

Question 2:

Based on the fact that in October, the novel data presented was a factor for the machine hours and did not transform for both the low and high months, the outcome would be, as aligned to the above assessment of 5 000, there would not be any notable changes for the low month. Though there would be changes for the high month:

Changes in costs: (October) $24 000 – $18 000

=$ 6000

Changes in activity would remain as 400

Therefore, the new variable would be:

At high month:

=$ 1500 per month.

Question 3:

The High-low method and regression are incredibly distinct. The total support cost could vary as aligned to the total machine hours applied. The regression assessment offers an equation to define a variable and fixed parts within a particular support cost. The least-square regression assessment determines the cost function accurately, utilizing the statistics for fitting the cost function to every data (Horngren et al., 2014). The provided equation shows that $4050 is the fixed-cost measure per month, and $10.50 is the variable-cost measure. Thus, the more unit produced, the president would establish less cost per unit. Therefore, I would recommend using a regression equation since the high-low method has a higher fixed cost and a lower variable.

Reference

Horngren, C. T., Sundem, G. L., & Burgstahler, D., & Schatzberg, J. (2014). Introduction to Management Accounting, (16th ed.). Boston, MA: Pearson.