Keesha House, Inc. has two producing divisions (Textbooks and Pocketbooks) and three auxiliary departments (Finance and Administration,
Question:
- Keesha House, Inc. has two producing divisions (Textbooks and Pocketbooks) and three auxiliary departments (Finance and Administration, Personnel and Public Relations). Budgeted 2006 costs are as follows (in US Dollars):
Textbooks, 2,820,000; Pocketbooks, 3,400,000; Finance and Administration, 1,800,000; Personnel, 840,000; Public Relations, 960,000
The overhead costs in the Pocketbook Division can be broken down into their fixed and variable elements as follows:
Activity-Driven OH Costs Rate per Equipment Hour
Indirect manpower costs | $ 96 |
Indirect materials | 14 |
Human resources benefits | 30 |
Within a monthly activity range of 600-1,000 equipment hours, an annual amount totaling $336,000 will be unchanged. The amount is composed of Supervision (40%), Insurance and Taxes (22%), Depreciation (30.5%) and Maintenance (7.5%).
The said division also experienced equipment hours and utility costs (respectively) for the past eight months. They are as follows:
December | 810 | $ 708 |
November | 1,100 | 760 |
October | 680 | 673 |
September | 540 | 623 |
August | 860 | 721 |
July | 640 | 660 |
June | 720 | 682 |
May | 920 | 730 |
The service departments and select potential allocation bases are presented below
Iin order of their benefit-provided ranking. Management believes that personnel
costs should be allocated on the basis of number of employees, administration
costs on the basis of number of employee hours and public relation costs on the
basis of dollar assets employed.
# of Employee Hrs. # of Employees Dollars of Assets
Employed
Administration | 16,890 | 8 | $ 600,003 |
Personnel | 11,097 | 5 | 243,701 |
Public Relation | 9,543 | 4 | 155,890 |
Textbook | 18,656 | 9 | 609,697 |
Pocketbook | 22,231 | 11 | 989,898 |
Required:
- Using the high-low method, separate the Pocketbook Division’s utility cost into its fixed and variable components (5 points).
- Using the least squares (simple regression) method, separate the Pocketbook Division’s utility cost into its fixed and variable components (5 points).
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling