Amy: Well, setup costs also have very little to do with direct labor hours. And they...

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Amy: Well, setup costs also have very little to do with direct labor hours. And they are certainly not fixed at least not all of them. We had to do more setups than our original plan called for because of the scheduling changes. And we must pay our people when they work extra hours. It seems like we are always paying overtime. I wonder if we simply do not have enough people for the setup activity. Also, there are supplies that are used for each setup and they are not cheap. Did you build these extra costs of increased setup activity into your budget? Hector: No, we assume that setup costs were fixed. I see now that some of them could vary as the number of setups increases. Amy, let me see if I can develop some flexible budgeting cost formulas based on better explanatory variables. I'll get back with you in a few days. After a few days' work, Hector developed the following flexible budget formulas, all with a coefficient of determination greater than 90%: Direct materials cost = $5X, where X = Direct labor hours Direct labor cost = $15X, where X = Direct labor hours Power cost $68,000+ 0.9Y, where Y = Machine hours Setup cost = $98,000+ $400Z, where Z = Number of setups The actual measures for each of the activity drivers are as follows: Direct labor hours Machine hours Number of setups 5. Using the newly developed formulas, calculate what the costs should have been for the actual measures of activity for each of the four manufacturing activities. What are the total after-the-fact budgeted manufacturing costs? How does this compare with the total expected costs calculated in Requirement 1? 8. 20,000 90,000 110 6. Prepare a performance report using the flexible budget outcomes in Requirement 5. Does the report validate the concerns expressed by Amy about the traditional performance report? Explain. 7. Assume that the following activity usage is provided for each of the two products: Machine hours 55,000 35,000 Product Crimping pliers Crown scissors Direct labor hours 10,000 10,000 Setups 70 40 a. Using the total budgeted costs calculated in Requirement 5, calculate a manufacturing cost rate per direct labor hour and use this rate to assign the manufacturing costs to each product line. b. Using the budgeted costs for each activity calculated in Requirement 5, calculate an activity rate for each of the four activities and use these rates to assign manufacturing costs to each product line. Round each rate calculation to the nearest dollar except for power rate; round it to the nearest cent c. Compare the product line cost assignments made in 9a and 9b. Which do you consider to be the more accurate? Explain. Discuss the role of data analytics in the interaction between Amy and Hector. Amy: Well, setup costs also have very little to do with direct labor hours. And they are certainly not fixed at least not all of them. We had to do more setups than our original plan called for because of the scheduling changes. And we must pay our people when they work extra hours. It seems like we are always paying overtime. I wonder if we simply do not have enough people for the setup activity. Also, there are supplies that are used for each setup and they are not cheap. Did you build these extra costs of increased setup activity into your budget? Hector: No, we assume that setup costs were fixed. I see now that some of them could vary as the number of setups increases. Amy, let me see if I can develop some flexible budgeting cost formulas based on better explanatory variables. I'll get back with you in a few days. After a few days' work, Hector developed the following flexible budget formulas, all with a coefficient of determination greater than 90%: Direct materials cost = $5X, where X = Direct labor hours Direct labor cost = $15X, where X = Direct labor hours Power cost $68,000+ 0.9Y, where Y = Machine hours Setup cost = $98,000+ $400Z, where Z = Number of setups The actual measures for each of the activity drivers are as follows: Direct labor hours Machine hours Number of setups 5. Using the newly developed formulas, calculate what the costs should have been for the actual measures of activity for each of the four manufacturing activities. What are the total after-the-fact budgeted manufacturing costs? How does this compare with the total expected costs calculated in Requirement 1? 8. 20,000 90,000 110 6. Prepare a performance report using the flexible budget outcomes in Requirement 5. Does the report validate the concerns expressed by Amy about the traditional performance report? Explain. 7. Assume that the following activity usage is provided for each of the two products: Machine hours 55,000 35,000 Product Crimping pliers Crown scissors Direct labor hours 10,000 10,000 Setups 70 40 a. Using the total budgeted costs calculated in Requirement 5, calculate a manufacturing cost rate per direct labor hour and use this rate to assign the manufacturing costs to each product line. b. Using the budgeted costs for each activity calculated in Requirement 5, calculate an activity rate for each of the four activities and use these rates to assign manufacturing costs to each product line. Round each rate calculation to the nearest dollar except for power rate; round it to the nearest cent c. Compare the product line cost assignments made in 9a and 9b. Which do you consider to be the more accurate? Explain. Discuss the role of data analytics in the interaction between Amy and Hector.

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5 Using the newly developed formulas we can calculate the budgeted costs for each of the four manufacturing activities as follows Direct materials cos... View the full answer