Data Set 2 provides additional information for the 48 observations collected by Julie. It includes information for setup costs, purchasing costs, labor-related costs, and total conversion costs. The total conversion costs are equal to the sum of setup costs, purchasing costs and labor-related costs. Julie also provides you with the number of setups, the number of purchase orders, and direct labor hours used for products FTC/A105 and FTC/B107.

Product # of Setups # of POs DLHs

FTC/A105 30 30 9,000

FTC/B107 110 150 2,000

Jordan is concerned that the relationship between conversion costs and direct labor hours has weakened since automation, given the significant decrease in the required number of direct labor hours. At the same time, overhead costs resulting from the new automation has increased dramatically.

First, recalculate the product costs for FTC/A105 and FTC/B107 using activity-based costing.

What can you tell Jordan and Alfred about the relationships between the different costs and the cost drivers?

What happens when you calculate the correlations or perform some simple regressions between the different costs and the cost drivers?

Observations 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 DLH 89,300 93,500 95,000 100,500 95,500 97,000 162,250 99,500 96,650 83,000 91,850 91,250 98,500 112,500 98,400 109,000 101,000 81,600 80,400 86,000 115,500 92,650 97,950 91,000 98,000 122,000 101,500 92,000 84,000 116,000 90,500 98,250 105,500 104,000 105,000 106,000 100,000 99,350 104,400 94,000 100,450 102,150 80,000 87,000 96,500 88,500 119,000 96,000 Total Costs 17,682,150 17,641,000 17,709,625 17,618,250 17,819,450 17,713,825 17,878,400 19,508,125 17,867,725 18,150,625 18,084,400 18,131,875 18,636,950 18,805,000 18,676,225 18,762,745 18,758,125 18,846,450 19,158,150 19,193,500 19,435,950 19,349,450 19,339,350 19,317,575 19,444,825 20,052,850 19,451,150 19,624,900 20,080,125 19,871,875 19,975,825 17,312,625 19,933,900 20,209,000 18,014,500 19,592,675 20,336,250 19,435,450 18,965,400 17,654,675 17,972,6/5 20,587,500 16,792,000 16,861,875 17,012,875 17,039,175 19,513,000 17,458,350 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 Observations 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 DLH 89,300 93,500 95,000 100,500 95,500 97,000 162,250 99,500 96,650 83,000 91,850 91,250 98,500 112,500 98,400 109,000 101,000 81,600 80,400 86,000 115,500 92,650 97,950 91,000 98,000 122,000 101,500 92,000 84,000 116,000 90,500 98,250 105,500 104,000 105,000 106,000 100,000 99,350 104,400 94,000 100,450 102,150 80,000 87,000 96,500 88,500 119,000 96,000 Total Costs 17,682,150 17,641,000 17,709,625 17,618,250 17,819,450 17,713,825 17,878,400 19,508,125 17,867,725 18,150,625 18,084,400 18,131,875 18,636,950 18,805,000 18,676,225 18,762,745 18,758,125 18,846,450 19,158,150 19,193,500 19,435,950 19,349,450 19,339,350 19,317,575 19,444,825 20,052,850 19,451,150 19,624,900 20,080,125 19,871,875 19,975,825 17,312,625 19,933,900 20,209,000 18,014,500 19,592,675 20,336,250 19,435,450 18,965,400 17,654,675 17,972,6/5 20,587,500 16,792,000 16,861,875 17,012,875 17,039,175 19,513,000 17,458,350 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48