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Visual Fit Method

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The annual salary of a maintenance mechanic is $25,000 and is considered a fixed cost. Two plausible cost drivers have been suggested: units produced and number of setups.

Data had been collected for the past 12 months and a plot made for the cost driver - units of production. The maintenance cost figures collected include estimates for labor, supplies, and energy. You recently attended an activity-based costing seminar where you learned that some types of activities are performed each time a batch of goods is processed rather than each time a unit is produced. Based on this concept, you have gathered data on the number of steps performed over the past 12 months. The plots of monthly maintenance costs vs. the two potential cost drivers follow.

1. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using the visual-fit method based on each potential cost driver. Explain how you treated the April data.

2. Find monthly fixed maintenance cost of the variable maintenance cost per driver unit using the high-low method based on each potential cost driver.

3.Which cost driver best meets the criteria for choosing cost functions? Explain.

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This solution finds monthly fixed maintenance cost and the variable maintenance cost per driver unit using the visual-fit method based on each potential cost driver.

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Accounting

I need help with these 2 problems. Thanks.

Moore Company needs to determine the variable utilities rate per direct machine hour in order to estimate cost for August. Relevant information is as follows.

Month Machine Hours Worked Utilities
Cost
April 4,800 $4,144
May 5,200 4,300
June 5,600 4,482
July 6,000 4,804

Moore anticipates producing 3,800 units in August, with each unit requiring 1.5 hours of machine time. The company uses the high-low method to analyze costs.

Required:
A. Calculate the variable and fixed components of the utilities cost.
B. Using the data calculated above, estimate the utilities cost for August.
C. Compare the high-low method versus the visual-fit method with respect to (1) number of data observations used in the analysis and (2) objectivity of the results.

Hampton Company had the following inventory balances at the beginning and end of the year:

January 1 December 31
Raw material $ 50,000 $ 35,000
Work in process 130,000 170,000
Finished goods 280,000 255,000

During the year, the company purchased $100,000 of raw material and spent $340,000 on direct labor. Other data: manufacturing overhead incurred, $450,000; sales, $1,560,000; selling and administrative expenses, $90,000; income tax rate, 30%.

Required:
A. Calculate cost of goods manufactured.
B. Calculate cost of goods sold.
C. Determine Hampton's net income.

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