Question
Provide answers to the following questions: 1. Munir Hassan, controller, gathered data on overhead costs and direct labour-hours over the past 12 months. Discuss the
Provide answers to the following questions: 1. Munir Hassan, controller, gathered data on overhead costs and direct labour-hours over the past 12 months. Discuss the different approaches Munir can use to estimate a cost function for overhead costs using direct labour-hours as the cost driver. 2. A corporation can measure its quality performance by using financial or nonfinancial measures of quality. Discuss the merits of each method and whether the use of one precludes the use of the other. Page 3 of 10 3. The ideal database for estimating cost functions has two characteristics: 1. The database should contain numerous reliably measured observations of the cost driver (the independent variable) and the related costs (the dependent variable). 2. It includes values for the independent variable over a wide range. Unfortunately, management accountants rarely have the advantage of working with a database that has both characteristics. Required: The following are some data problems that may be encountered. Describe the cause/effect of the problem and provide a remedy. 1. The time period for measuring the dependent variable does not match the period for measuring the independent variable. 2. Fixed costs are allocated as if they were variable. 4. Why do organizations use budgeted rates instead of actual rates to allocate the costs of support departments to each other and to user departments and divisions? Page 4 of 10 5. Review the following report of the results of a simple regression program for cost estimation. Variable Coefficient Standard Error t-Value Constant 24.88 17.90 1.39 Independent Variable444.70 179.31 2.48 r2 = 0.72 Required: a. What is the cost estimation equation according to the report? b. What is the goodness of fit? What does it tell about the estimating equation?
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