After considering the explanations and analyses offered by Hector, the interaction between the two continued as follows. Amy: I think I see the problem. Power costs don't have a lot to do with direct labor hours. They have more to do with machine hours. As production increases, machine hours increase more rapidly than direct labor hours. Also... Hector: You know, you have a point. The coefficient of determination for power cost is only about 50%. That leaves a lot of unexplained cost variation. The coefficient for the labor and materials equations, however, is much better. It explains about 96% of the cost variation in each case. Setup costs, of course, are fixed. Amy: Well, setup costs also have very little to do with direct labor hours. And they are certainly not fixed-at least not all of them. We had to do more setups than our original plan called for because of the scheduling changes. And we must pay our people when they work extra hours. It seems like we are always paying overtime. I wonder if we simply do not have enough people for the setup activity. Also, there are supplies that are used for each setup and they are not cheap. Did you build these extra costs of increased setup activity into your budget? Hector: No, we assume that setup costs were fixed. I see now that some of them could vary as the number of setups increases. Amy, let me see if I can develop some flexible budgeting cost formulas based on better explanatory variables. I'll get back with you in a few days. After a few days' work, Hector developed the following flexible budget formulas, all with a coefficient of determination greater than 90% : about the traditional performance report? Explain. 7. Assume that the following activity usage is provided for each of the two products: a. Using the total budgeted costs calculated in Requirement 5, calculate a manufacturing cost rate per direct labor hour and use this rate to assign the manufacturing costs to each product line. b. Using the budgeted costs for each activity calculated in Requirement 5 , calculate an activity rate for each of the four activities and use these rates to assign manufacturing costs to each product line. Round each rate calculation to the nearest dollar except for power rate; round it to the nearest cent c. Compare the product line cost assignments made in 9a and 9b. Which do you consider to be the more accurate? Explain. 8. Discuss the role of data analytics in the interaction between Amy and Hector. Direct materials cost =$5X, where X= Direct labor hours Direct labor cost =$15X, where X= Direct labor hours Power cost =$68,000+0.9Y, where Y= Machine hours Setup cost =$98,000+$400Z, where Z= Number of setups The actual measures for each of the activity drivers are as follows: 5. Using the newly developed formulas, calculate what the costs should have been for the actual measures of activity for each of the four manufacturing activities. What are the total after-the-fact budgeted manufacturing costs? How does this compare with the total expected costs calculated in Requirement 1 ? 6. Prepare a performance report using the flexible budget outcomes in Requirement 5. Does the report validate the concerns expressed by Amy After considering the explanations and analyses offered by Hector, the interaction between the two continued as follows. Amy: I think I see the problem. Power costs don't have a lot to do with direct labor hours. They have more to do with machine hours. As production increases, machine hours increase more rapidly than direct labor hours. Also... Hector: You know, you have a point. The coefficient of determination for power cost is only about 50%. That leaves a lot of unexplained cost variation. The coefficient for the labor and materials equations, however, is much better. It explains about 96% of the cost variation in each case. Setup costs, of course, are fixed. Amy: Well, setup costs also have very little to do with direct labor hours. And they are certainly not fixed-at least not all of them. We had to do more setups than our original plan called for because of the scheduling changes. And we must pay our people when they work extra hours. It seems like we are always paying overtime. I wonder if we simply do not have enough people for the setup activity. Also, there are supplies that are used for each setup and they are not cheap. Did you build these extra costs of increased setup activity into your budget? Hector: No, we assume that setup costs were fixed. I see now that some of them could vary as the number of setups increases. Amy, let me see if I can develop some flexible budgeting cost formulas based on better explanatory variables. I'll get back with you in a few days. After a few days' work, Hector developed the following flexible budget formulas, all with a coefficient of determination greater than 90% : about the traditional performance report? Explain. 7. Assume that the following activity usage is provided for each of the two products: a. Using the total budgeted costs calculated in Requirement 5, calculate a manufacturing cost rate per direct labor hour and use this rate to assign the manufacturing costs to each product line. b. Using the budgeted costs for each activity calculated in Requirement 5 , calculate an activity rate for each of the four activities and use these rates to assign manufacturing costs to each product line. Round each rate calculation to the nearest dollar except for power rate; round it to the nearest cent c. Compare the product line cost assignments made in 9a and 9b. Which do you consider to be the more accurate? Explain. 8. Discuss the role of data analytics in the interaction between Amy and Hector. Direct materials cost =$5X, where X= Direct labor hours Direct labor cost =$15X, where X= Direct labor hours Power cost =$68,000+0.9Y, where Y= Machine hours Setup cost =$98,000+$400Z, where Z= Number of setups The actual measures for each of the activity drivers are as follows: 5. Using the newly developed formulas, calculate what the costs should have been for the actual measures of activity for each of the four manufacturing activities. What are the total after-the-fact budgeted manufacturing costs? How does this compare with the total expected costs calculated in Requirement 1 ? 6. Prepare a performance report using the flexible budget outcomes in Requirement 5. Does the report validate the concerns expressed by Amy