Introduction: Anselmi Company has been in business one year manufacturing specialty Italian pastas. The company began based on strong favorable reaction to an Anselmi family pasta dough recipe. Carlo Anselmi was convinced by friends and associates that his grandma's pasta would have great market appeal. Carlo and two close family members test marketed some packages of grandma's homemade fettuccine. Based on the response, they decided to start a company that would mass produce ribbon and string-style pasta (fettucine, linguine, and spaghetti). Seven sequential processes were required to produce the final product (with Grandma Anselmi Pasta being the chosen product name).
Following Grandma Anselmi's recipe, the pasta products start with a mixing process where flour, water, eggs, and a special blend of herbs and spices are mixed and kneaded to a lumpy consistency. Next, the kneaded mixture goes through a rolling process, where the dough is placed on a laminator and flattened into sheets. The flattened dough is then pasteurized to kill bacteria and subsequently passed through a cutting machine. The cutting machine has to be configured (setup) to produce the particular type of pasta (fettucine, linguine or spaghetti). The final two steps are drying and packaging. The pasta is produced in batches because the recipe differs for each type of pasta (fettucine, linguine, and spaghetti). Each time a batch is produced, the vats for mixing must be cleaned and prepared and the settings for cutting must be appropriately set.
During the first year, sales were weaker than expected during the first quarter, but increased in each of the remaining three quarters. Marketing surveys revealed that customers were very pleased with the quality and flavor of the pasta. The trends were all good, but Carlo was somewhat concerned as they had yet to make a profit. Over the course of the year, 733,000 boxes were sold, less than initially projected. Carlo was interested in knowing how many boxes of pasta must be sold to breakeven. To do the CVP analysis, Joe Anselmi, his controller (and nephew), accumulated the following per-unit data to help determine the relevant fixed and variable costs (the prime costs are essentially the same for each type of pasta even though the recipe varies):
e X :l http://east.cengagenow.com/ilm/takeAssignment/takeAssignmentMain.do?takeAssignmentSes D ' 0 .My Blackb... \"Homework... Cengag... X {E 3:? {:3} (xi A 1. Joe Anseimi wants to separate overhead costs into xed and variable components. He is not sure whether machine hours, setups, or both drive the overhead costs. Initially, he decided to - use the highiiow method to identify xed and variable components, rst using machine hours and then using setups. Required: Using the highilow method, calculate the total monthly xed cost and the variable cost per unit for machine hours and setups (round the monthly xed costs to the nearest dollar and the unit costs to the nearest cent): Machine hours: Monthiy xed cost: a; Unit variable cost: 3; per machine hour Setups : Monthly xed cost: $_ Unit variable co: $ per setup 2. After seeing the two highilow equations, Joe was somewhat befuddled. Which driver should he useiif either? After some analysis, he decided that a method was needed that would allow him to choose the driver(s) that best described the cost relationship. He discovered that the method of least squares calculates a measure called the coefficient of determination (R2). The coefcient of determination is a measure of which gives explained by the driver(s). Required: Using a regression program such as Microsoft Excel, separate overhead into xed and variable components using ordinary least squares (regression) analysis. Run three regressions using (a) number of machine hours, (b) number of setups, and (c) a multiple regression using both machine hours and number of setups). Round fixed costs to the nearest dollar and unit variable costs to the nearest cent. Also, calculate and provide the coefcient of determination (R2) for each equation. Round R2 to two decimal places. a. Machine hours: Monthly xed cost: 3; Cost per machine hour: $1 R1: h. Setups: v , X :1 http://east.cengagenow.com/ilrn/TakeAssignment/takeAssignmentMain.do?takeAssignmentSes D ' 0 .My Blackb... \"Homework... Cengag... X {E 3:? {:3} COQHICIEnE 0r clerermlnatlon IS a measure Or - Select VDIII' answer-m WnlCn glves ' select ylll BHSWEI' - m explalneu Dy [n2 UFIVET(S}. Required: Using a regression program such as Microsoft Excel, separate overhead into xed and variable components using ordinary least squares (regression) analysis. Run three regressions using (a) number of machine hours, (b) number of setups, and (c) a multiple regression using both machine hours and number of setups). Round fixed costs to the nearest dollar and unit variable costs to the nearest cent. Also, calculate and provide the coefcient of determination (R2) for each equation. Round R2 to two decimal places. a. Machine hours: Monthly xed cost: 55 Cost per machine hour: 3;: R1: Setups: Monthly xed cost: $' Cost per setup: 5; R2: Both machine hours and setups: If required, use rounded answers in the subsequent requirements. Monthly xed cost: '3 Cost per machine hour: 3; Cost per setup: 3; R1: Summary Questions: 1. The high-low method may not work well because the high or low points may be (Select "Yes" for the statements that are applicable, else please select "No" from the below dropdowns.): representative of the costaactivity pattern , Select your answer , not very representative of the costaactivity pattern , Select your answer , too simple , select your answer , 7 X http://east.cengagenow.corn/ilrn/takeAssignment/takeAssignmentMain.do?takeAssignmentSes D ' 0 .My Blackb... \"Homework... Cengag... X {E 3:? 93} c. Both machine hours and setups: If required, use rounded answers in the subsequent requirements. Monthly xed cnst: $ 7 Cost per machine hour: 3: Cost per setup: g R1: l Summary Questions: 1. The highilow method may not work well because the high or low points may be (Select "Yes" for the statements that are applicable, else please select "No\" from the below dropdowns.): representative of the costiactivity pattern not very representative of the costiactivity pattern W 2. Based on the results of the regressions, the bestatting equation is the one using: 3. Calculate the expected overhead if 600 machine hours and 12 setups are used (round to the nearest dollar]: Expected overhead cost: $ Check My Work (3 remaining) o.. Icml Key Integrated Activity: Cost Behavior 1] Question 3 of 3 Email Instructor hm Assignment for Gladlng e X r \\ 0k) 4;\" http://east.csngagenow.corn/i|rn/takeAssignment/takeAssignrnentMain.do?takeAssignmentSes D ' 0 \"My Blackb... \"Homework... Cengag... X Q i? {} Assignment: case StudyCh 2 a 3 Assignment Score: 0'00\"" c, 'u A Em ' tructor bm' Ass' ment for 6 'ng Questions Integrated Activity: Cost Behavior 1] E Question 3 of 3 1 O 1 2 0 Step 1 Check My Work (3 remaining) Cost Behavior and the Method of Least Squares Instructions: Use the tabs above to navigate back and forth between steps. Rev w ba c methods for separat g m ed costs . Click here to refer to the question information. Intmd uction : Anselmi Company has been in business one year manufacturing specialty Italian pastas. The company began based on strong favorable reaction to an Anselmi family pasta dough recipe. Carlo Anselmi was convinced by friends and associates that his grandma's pasta would have great market appeal. Carlo and two close family members test marketed some packages of grandma's homemade fettuccine. Based on the response, they decided to start a company that would mass produce ribbon and stringastyle pasta (fettucine, linguine, and spaghetti). Seven sequential processes were required to produce the nal product (with Grandma Anselmi Pasta being the chosen product name). Following Grandma Anselmi's recipe, the pasta products start with a mixing process where our, water, eggs, and a special blend of herbs and spices are mixed and kneaded to a lumpy consistency. Next, the kneaded mixture goes through a rolling process, where the dough is placed on a laminator and attened into sheets. The attened dough is then pasteurized to kill bacteria and subsequently passed through a cutting machine. The cutting machine has to be congured (setup) to produce the particular type of pasta (fettucine, linguine or spaghetti). The nal two steps are drying and packaging. The pasta is produced in batches because the recipe differs for each type of pasta (fettucine, linguine, and spaghetti). Each time a batch is produced, the vats for mixing must be cleaned and prepared and the settings for cutting must be appropriately set. During the rst year, sales were weaker than expected during the rst quarter, but increased in each of the rema ing three quarters. Marketing surveys revealed that customers were very pleased with the quality and avor of the pasta. The trends were all good, but Carlo was somewhat concerned as they had yet to make a prot. Over the course of the year, 733,000 boxes were sold, less than initially projected. Carlo was interested in knowing how many boxes of pasta must be sold to breakeven. To do the CVP analysis, Joe Anselmi, his controller (and nephew), accumulated the following per-unit data to help determine the relevant xed and variable costs (the prime costs are essentially the same for each type of pasta even though the recipe varies): Sell 9 price 7 x 06) http://east.cengagenow.com/ilrn/takeAssignment/takeAssignmentMain.do?takeAssignmentSes .0 ' Cd \"My Blackb... \"Homework... Cengag... X {E i}? {} though the recipe varies): A Selling price Direct materials Direct labor Joe also determined that selling and administrative expenses, all xed, totaled $240,000. However, Joe had difculty with separating overhead into xed and variable components. In examining the two major overheadirelated activities (machining and setups), Joe has observed that machine hours appears to be closely correlated with units produoed in that 100 boxes of pasta can be produced per machine hour. Joe has accumulated the following information on overhead costs, machine hours, and number of setups for the past 12 months. January $31,125 595 18 March $29,625 575 12 May $32,750 650 20 July $29,250 630 16 September $29,150 650 11 November $27,900 580 14 1. Joe Anselmi wants to separate overhead costs into xed and variable components. He is not sure whether machine hours, setups, or both drive the overhead costs. Initially, he decided to use the highalow method to identify xed and variable components, first using machine hours and then using setups. v
