Top Co. is a large corporation with more than 30 departments each employing 25100
people. Recent experience suggests that the cost function used to estimate overhead in
Department XO12 is no longer appropriate. The current function was developed three
years ago and a number of departmental changes have occurred since. The changes
happened one at a time and they included changes in facilities and processes. The cost
accountant decided that each individual change that occurred wasn’t major enough to
justify calculation of a new cost function. Now it’s clear that the cumulative effect of all
the changes has been large.
You’ve been assigned the task of developing a new cost function for overhead in
Department XO12. Initial analysis suggests that the number of direct labor hours maybe
an appropriate cost driver. Departmental records are available for nine months and can be
found on the attached spreadsheet.
An assistant has analyzed the data for March through July and made the appropriate
adjustments except for the following items (for which the assistant was unsure of the
proper treatment).
1. The semiannual property tax bill for Department XO12 was paid on June 30. The
entire amount (1) $3,000 was charged to overhead for June.
2. The costs to install a new piece of equipment with a life of 10 years in the
department were charged to overhead in April. The installation cost was (2)
$4,300.
3. Factory depreciation is allocated to Department XO12 every month. The
department’s share, (3) $8,000, is included in overhead.
4. A strike closed the plant for three weeks in July. Several supervisors were kept
on payroll during the strike. Their duties were general housekeeping. These costs
were charged to overhead.
You also have the details for the overhead account for the months of August and
September. They are presented on the attached spreadsheet. You were hired on October 1
and have keeping the department accounts since then. Therefore, you know that the data
for October and November are correct, except for any adjustments that might be needed
for the preceding items.
ALL formulas, references are required.
Required:
1. Using the information provided, prepare a spreadsheet to show the adjustments to
the monthly cost data to more accurately reflect the overhead costs incurred
during the months March through November. Use the following column headings:
Month Unadjusted Property Depreciation1 Other2 Payroll3 Adjusted
Overhead
Tax
Cost
2. Discuss whether the data for July should be included in the estimate of future
costs. Use a scatter plot to help you answer this question.
3. Use Excel to develop a cost function by regressing overhead costs in Department
XO12 on direct labor hours.
4. Discuss whether your cost function would be reasonable for estimating future
overhead costs. Be specific and refer to the Excel regression output.
1 To predict future overhead the first month depreciation adjustment for the new piece of
equipment starts in March even though it’s not an actual cost until April.
2 Dept. AB34’s power should be added to Dept. XO12.
3 Note payroll paid every two weeks: ½ of August 5 payroll goes to July. Similarly, 80%
of September 2 payroll to August.
Get Tutorials for this question at:
http://www.homeworkminutes.com/question/view/31053/ACCT-Project-1-FALL-2014-Top-Co-is-a-large-corporation-with-more-than-30-departments-each-employing
people. Recent experience suggests that the cost function used to estimate overhead in
Department XO12 is no longer appropriate. The current function was developed three
years ago and a number of departmental changes have occurred since. The changes
happened one at a time and they included changes in facilities and processes. The cost
accountant decided that each individual change that occurred wasn’t major enough to
justify calculation of a new cost function. Now it’s clear that the cumulative effect of all
the changes has been large.
You’ve been assigned the task of developing a new cost function for overhead in
Department XO12. Initial analysis suggests that the number of direct labor hours maybe
an appropriate cost driver. Departmental records are available for nine months and can be
found on the attached spreadsheet.
An assistant has analyzed the data for March through July and made the appropriate
adjustments except for the following items (for which the assistant was unsure of the
proper treatment).
1. The semiannual property tax bill for Department XO12 was paid on June 30. The
entire amount (1) $3,000 was charged to overhead for June.
2. The costs to install a new piece of equipment with a life of 10 years in the
department were charged to overhead in April. The installation cost was (2)
$4,300.
3. Factory depreciation is allocated to Department XO12 every month. The
department’s share, (3) $8,000, is included in overhead.
4. A strike closed the plant for three weeks in July. Several supervisors were kept
on payroll during the strike. Their duties were general housekeeping. These costs
were charged to overhead.
You also have the details for the overhead account for the months of August and
September. They are presented on the attached spreadsheet. You were hired on October 1
and have keeping the department accounts since then. Therefore, you know that the data
for October and November are correct, except for any adjustments that might be needed
for the preceding items.
ALL formulas, references are required.
Required:
1. Using the information provided, prepare a spreadsheet to show the adjustments to
the monthly cost data to more accurately reflect the overhead costs incurred
during the months March through November. Use the following column headings:
Month Unadjusted Property Depreciation1 Other2 Payroll3 Adjusted
Overhead
Tax
Cost
2. Discuss whether the data for July should be included in the estimate of future
costs. Use a scatter plot to help you answer this question.
3. Use Excel to develop a cost function by regressing overhead costs in Department
XO12 on direct labor hours.
4. Discuss whether your cost function would be reasonable for estimating future
overhead costs. Be specific and refer to the Excel regression output.
1 To predict future overhead the first month depreciation adjustment for the new piece of
equipment starts in March even though it’s not an actual cost until April.
2 Dept. AB34’s power should be added to Dept. XO12.
3 Note payroll paid every two weeks: ½ of August 5 payroll goes to July. Similarly, 80%
of September 2 payroll to August.
Get Tutorials for this question at:
http://www.homeworkminutes.com/question/view/31053/ACCT-Project-1-FALL-2014-Top-Co-is-a-large-corporation-with-more-than-30-departments-each-employing
