A.

A hospital is analyzing its overhead costs. It is not clear whether the number of patient days or nursing hours would be the best cost driver to use in predicting the hospital's overhead. The latest information on the hospital is as follows:

Month Hospital Nursing No. of Overhead Overhead Cost

Overhead Hours Patient Cost Per Per Patient

Costs Days Nursing Hr. Day

July $965,000 51,000 8,000 $18.92 $120.63

August $1,000,000 53,000 9,000 $18.86 $111.11

September $830,000 38,000 8,750 $21.84 $ 94.86

October $925,000 43,000 7,000 $21.51 $132.14

November $1,100,000 65,000 12,000 $16.92 $ 91.67

December $900,000 42,000 7,900 $21.42 $113.92

Required:

• Graph the hospital's overhead costs against the number of patient days. Note: This is for your benefit so that you can answer Question 3; you do not need to submit this graph as part of the assignment.

• Graph the hospital's overhead costs against nursing hours. Note: This is for your benefit so that you can answer Question 3; you do not need to submit this graph as part of the assignment.

• Based on the graphs that you drew, do the data appear to be straight forward or do you see any potential problems with the data (i.e, do the data points form straight lines)? Please explain.

• Using the high-low method, determine the hospital's variable cost per nursing hour, rounded to two decimal places.

• Now that you have calculated both the variable and fixed portions hospital overhead costs, write out the equation for hospital overhead costs using the high-low method.

• Using the cost equation that you just wrote, predict hospital overhead costs if 54,000 nursing hours are expended in a month.

• The hospital ran a regression analysis using nursing hours as the cost driver to predict total hospital overhead costs. The regression analysis produced the following data:

Intercept	346245
Slope	12.81796
RSQ	0.909311

Round the variable portion of the regression equation formula to two decimal places. Based on the regression equation formula, what will the predicted total hospital overhead costs be if 54,000 nursing hours are expended during a month?

• The hospital then ran a regression analysis using number of patient days as cost driver. The regression analysis produced the following data:

Intercept	559764
Slope	47.970926
RSQ	0.563496482

Again, round the variable portion of the regression equation to two decimal places. If 9,500 patient days are predicted for a month, what is the total predicted hospital overhead costs using the regression equation?

• Which regression equation, the one using nursing hours as the cost driver or the one using patient days as the cost driver, produces the most accurate correlation (best explanation of) the predicted hospital overhead costs. How do you know that your answer is correct? In other words, justify your answer.

B.

The Yucki Candy Co. makes and sells boxes of chocolate candy. Yucki has fixed expenses of $195,000 each month plus variable expenses of $6.00 per box of candy. Yucki sells each box of candy for $10.00.

• Compute the contribution margin of each box of candy.

• Compute the number of boxes of candy that Yucki must sell each month to break even. Round up to the nearest whole box.

• Compute the contribution margin ratio for a box of candy

.

• Compute the dollar amount of monthly sales Yucki needs to earn $2500,000 in profit. (Round the contribution margin ratio to four decimal places. Round sales up to the nearest dollar.)

• Prepare Yucki's contribution margin income statement for June for sales of 275,000 boxes of candy.

• What is the degree of leverage for June sales of 275,000 boxes of candy? (Carry answer out to four decimal places.)

• What is June's margin of safety (in dollars and cents)?

• By what percentage will operating income change if June's sales volume is 25% higher? (Round to two decimal places.)

• Prove your answer by comparing the difference in operating income after the change with the operating income before the change.

C.

Shattered Glass Company makes custom order ornate glass vases. The company uses a job-order cost system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Fabrication Department is based on machine hours, and the rate in the Finishing Department is based on direct labor hours. At the beginning of the year, the company's management made the following estimates for the year:

Department

Fabrication Finishing

Machine hours 79,000 25,000

Direct labor hours 27,000 42,000

Direct material cost $400,000 $212,000

Direct labor cost $350,000 $700,000

Fixed manufacturing overhead cost $750,000 $300,000

Variable manufacturing overhead per machine hour $2.50 --

Variable manufacturing overhead per direct labor hour -- $2.75

Job 99 (the Mother's Day special) was started on April 1 and completed on April 30. The company's cost records show the following information concerning the job:

Department

Fabrication Finishing

Machine hours 325 100

Direct labor hours 125 150

Direct materials cost $1,400 $1,200

Direct labor cost $950 1,200

• Compute the predetermined overhead rate used during the year in the Fabrication Department. (Round to two decimal places.) Be careful to use the proper cost driver.

• Compute the predetermined overhead rate used during the year in the Finishing Department. (Round to two decimal places.) Be careful to use the proper cost driver.

• Compute the total overhead cost applied to Job 99 (in dollars and cents).

• What would be the total cost recorded for Job 99? (Round to two decimal places.)

• If Job 99 contained 75 units, what would be the unit product cost? (Round to two decimal places.)

• If it contained 800 units, what would be the unit product cost? (Round to two decimal places.)

• At the end of the year, the records of Shattered Glass revealed the following actual cost and

operating data for all jobs during the year:

Department

Fabrication Finishing

Machines hours 80,000 28,000

Direct labor hours 28,25 0 41,000

Direct materials cost $410,000 $213,000

Manufacturing overhead cost $751,000 $298,000

What was the amount of actual overhead in each department at the end of the year? Was it underapplied or overapplied? (You should have a total of four answers for this question.)

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