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# Cost accounting for Highland Music Records

Lerner, Inc. , is accumulating data to prepare its annual profit plan for the coming year. The behavior pattern of the maintenance costs must be determined. The accounting staff has suggesed using regression to derive an equation in the form of y = a + bx for maintenance costs. Monthly data regarding maintenane hours and costs for the preceding year were entered into the regression analysis.

Total hours of maintenance for the year: 4,800
Total costs for the year: \$43,200
Regression results:
Intercept: 684.65
b cofficient: 7.2884
R2: 0.79724

a. In a regression equation expressed as y = a + bx, what is the letter b best described as?
b. What is the letter y in the regression equation best described as?
c. What is the letter x in the regression equation best described as?
d. Based on the data derived from the regression analysis, what are the estimated costs for 360 maintenance hours in a month?
e. What is the percent of the total variance that can be explained by the regression equations?

PROBLEM 11-41 PG. 450

Highland Music records and sells music. Every month, it produces several new products in batches. The costs of making the master CD, including hiring musicians and studio costs, are product-level costs. The costs of materials and packaging are unit-level costs. The costs of setting up the production run are batch-level costs. All other costs are facility-level costs. Highland Music's accounting records report the following production costs for January of this year:

Unit-level costs ............................ \$160,000
Batch-level costs .......................... 40,000
Product-level costs ...................... 180,000
Facility-level costs ........................ 50,000

Production was 50,000 units for eight new products, produced in 50 batches. Costs for June of this year are expected to increase over the costs for January of this year as follows: the unit-level costs, 5 percent per unit; the batch-level costs, 4 percent per batch; the product-level costs, 4 percent per product; and the facility-level costs, 5 percent for the month.

Required

a. What are the unit-level cost per unit, the batch-level cost per batch, and the product-level cost per product for January of this year?
b. What are the estimated facility-level costs for June of this year?
c. If in June of this year, Highland Music expects to produce 60,000 units for 12 new products in 100 batches, what will be its estimated total costs for the month?

#### Solution Summary

Cost accounting for Highland Music Records is seen in the solution.

\$2.19