Jeff Merchandisers (JM)has determined with 100 percent certainty the following costs for making one unit of its only product:

The company is, however, not sure of the behaviour of its total indirect manufacturing costs (that is, manufacturing overhead). The controller therefore ran a simple regression based on 20 pairs of monthly observations and obtained the following results:

Y represents total monthly manufacturing overhead costs while X represents total monthly manufacturing direct labour costs.

Required:

a. Assume JM incurs NO selling and administrative expenses. What is your best estimate of the company's monthly breakeven sales in units at a guaranteed selling price of $20.00 per unit?
b. Suppose JM uses an ABC system. Which one of the five ABC activity levels in JM's operations does the independent variable in the regression equation support? Why?
c. Again, suppose JM uses an ABC system. Identify two different activity levels in JM's operations the intercept term in the regression equation support. Give an example of a resource and an activity for each of the two different levels.

Question

Jeff Merchandisers (JM)has determined with 100 percent certainty the following costs for making one unit of its only product:

The company is, however, not sure of the behaviour of its total indirect manufacturing costs (that is, manufacturing overhead). The controller therefore ran a simple regression based on 20 pairs of monthly observations and obtained the following results:

Y represents total monthly manufacturing overhead costs while X represents total monthly manufacturing direct labour costs.

Required:

a. Assume JM incurs NO selling and administrative expenses. What is your best estimate of the company's monthly breakeven sales in units at a guaranteed selling price of $20.00 per unit?
b. Suppose JM uses an ABC system. Which one of the five ABC activity levels in JM's operations does the independent variable in the regression equation support? Why?
c. Again, suppose JM uses an ABC system. Identify two different activity levels in JM's operations the intercept term in the regression equation support. Give an example of a resource and an activity for each of the two different levels.

Quizplus · Accepted Answer

The Answer of Jeff Merchandisers (JM)has determined with 100 percent certainty the following costs for making one unit of its only product:

The company is, however, not sure of the behaviour of its total indirect manufacturing costs (that is, manufacturing overhead). The controller therefore ran a simple regression based on 20 pairs of monthly observations and obtained the following results:

Y represents total monthly manufacturing overhead costs while X represents total monthly manufacturing direct labour costs.

Required:

a. Assume JM incurs NO selling and administrative expenses. What is your best estimate of the company's monthly breakeven sales in units at a guaranteed selling price of $20.00 per unit?
b. Suppose JM uses an ABC system. Which one of the five ABC activity levels in JM's operations does the independent variable in the regression equation support? Why?
c. Again, suppose JM uses an ABC system. Identify two different activity levels in JM's operations the intercept term in the regression equation support. Give an example of a resource and an activity for each of the two different levels.

Jeff Merchandisers (JM)has Determined with 100 Percent Certainty the Following