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Regression Analysis: Sales Total Vs Profit Total

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A company produces the financial results shown in the table below. The executives at the firm have good reason to believe that $10 million in sales will be generated in 2010. Using simple linear regression, you advise them that this will equate to...

Year Sales Totals (in millions) Profit Totals (in millions)
1998 $7.0 $0.15
1999 $2.0 $0.10
2000 $6.0 $0.13
2001 $4.0 $0.15
2002 $14.0 $0.25
2003 $15.0 $0.27
2004 $16.0 $0.24
2005 $12.0 $0.20
2006 $14.0 $0.27
2007 $20.0 $0.44
2008 $15.0 $0.34
2009 $7.0 $0.17

a. $209,600 in profits.
b. $2,096,000 in profits.
c. $186,900 in profits.
d. $1,869,000 in profits.

22. When the CEO asks you how sure you are of the accuracy of the result provided in Problem #21 above, you show her the r-squared value and respond...
a. "54% sure."
b. "67% sure."
c. "84% sure."
d. "93% sure."

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The solution provides step by step method for the calculation of regression analysis. Formula for the calculation and Interpretations of the results are also included.

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Managerial Accounting Quality Management and Activity Based Costing

1. Review the Managerial Application "Toyota: Growth versus Reputation" (see attachment)

a. Who benefitted from management's decision to grow at the potential risk of lower quality?
b. Who suffered from that decision?

2. Why does just-in-time require total quality management?

3. Why might managers be more concerned about controlling costs than total quality management initiatives?

4. Costs of Quality.

Scan-It Company manufactures computer scanners. The following table presents financial information for two years.
Year 1 Year 2
Sales.......................................................................................2,000,000 $1,800,000
Quality Costs:
Scrap.......................................................................................15,000 16,000
Repair of returned goods........................................................35,000 40,000
Dealing with customer complaints.........................................23,000 28,000
Rework (goods spoiled during production) .......................... 150,000 150,000
Materials inspection............................................................... 55,000 40,000

a. Classify the above items into prevention, appraisal, internal failure, or external failure costs.
b. Calculate the percentage of each prevention, appraisal, internal failure, and external
failure cost to sales for Year 1 and Year 2.

5. Balanced Scorecard

John Donelan, the managing partner of the Dublin office of Donelan Consulting, saw the following diagram while visiting one of his clients, who owns a small manufacturing company.

(See attached)

Mr. Donelan commented to his client that he could see how to link increased training to improved production quality and how that would result in better customer satisfaction with the products. "I wish I could apply this model to the consulting business, but I don't think it works in consulting. It works for you because you produce a tangible good. What we produce is advice, which is not very tangible." Mr. Donelan's client responded, "You produce good advice, which helps us produce good products." "Well, that's good," Mr. Donelan replied, "but it doesn't help me to apply your model to my business so that we can provide even better advice." (And be more profitable, he thought to himself.)

Using the balanced scorecard as a starting point, write a brief report to Mr. Donelan that explains how to implement the model shown in the diagram for Donelan Consulting. Be specific in stating how to measure the performance of each step in the sequence, from increased employee training to better financial results.

6. "The concepts of short-run costs and long-run costs are relative—short run could mean a
day, a month, a year, or even 10 years, depending on what you are looking at." Comment briefly.

7. What methods of cost estimation rely primarily on historical data? Briefly discuss the problems an unwary user may encounter with the use of historical cost data.

8. (See Appendix 5.2.--attached) How is regression used to identify what cost drivers might be used in activity-based costing?

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