Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Account Analysis to Determine Cost Behavior J. Q. Higgins, owner of Robins Nest, wants to determine the cost behavior of labor and overhead. Higgins pays

Account Analysis to Determine Cost Behavior

J. Q. Higgins, owner of Robins Nest, wants to determine the cost behavior of labor and overhead. Higgins pays his workers a salary; during busy times, everyone works to get the orders out. Temps (temporary workers hired through an agency) may be hired to pack and prepare completed orders for shipment. During slower times, Higgins catches up on bookkeeping and administrative tasks while the salaried workers do preventive maintenance, clean the lines and building, etc. Temps are not hired during slow times. Higgins found that workers salaries, temp agency payments, rentals, utilities, and plant and equipment depreciation are the largest dollar accounts. He believes that workers salaries and plant and equipment depreciation are fixed, temp agency payments are associated with the number of orders (since temp workers are used to pack and prepare completed orders for shipment), and electricity is associated with the number of machine hours. When the number of different parts stored by Robins Nest exceeds the space in the materials storeroom, Higgins rents nearby warehouse space. He can rent as much or as little space as he wants on a month-to-month basis. Therefore, he believes warehouse rental payments are variable with the number of parts purchased and stored. The account balances for the past six months as well as the six-month total are as follows:

Workers' Salaries Temp Agency Payments Warehouse Rental Electricity Plant & Equipment Depreciation January $7,500 $0 $150 $275 $2,200 February 7,500 600 350 385 2,200 March 7,500 1,100 325 705 2,200 April 7,500 1,350 340 745 2,200 May 7,500 1,750 335 765 2,200 June 7,500 1,500 210 725 2,200 Total $45,000 $6,300 $1,710 $3,600 $13,200 Information on number of machine hours, orders, and parts for the six-month period follows:

Machine Hours Number of Orders Number of Parts January 2,000 10 200 February 3,100 40 600 March 5,800 350 550 April 6,200 400 580 May 6,900 490 570 June 6,000 390 350 Total 30,000 1,680 2,850

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield

13th Edition

9780470374948, 470423684, 470374942, 978-0470423684

More Books

Students also viewed these Accounting questions