Question 1 Furniture Mart manufactures and sells a range of furniture. The company follows a just- in-time production philosophy, which means that it only buys materials on a need basis for production and it does not carry work-in-progress inventory. During the last financial year, Furniture Mart reported the following information: Administrative costs Advertising and promotion expenses Commissions paid to sales personnel Cost of finished goods inventory on hand at the start of the year Cost of finished goods inventory on hand at the end of the year Cost of employee idle time Depreciation and other expenses on factory building Direct materials used in production Overtime premiums paid to workers Sales office expenses Indirect salary costs Salary costs of workers (time spent in production activities) Sales revenue $ 55,950 70,000 15,000 90,000 115,000 20,000 170,000 500,000 10,000 25,000 75,000 250,000 1,500,000 Furniture Mart's management accountant is particularly worried about what she perceives to be the high cost of administration. She decides to investigate the relationship between the number of invoices (both receivable and payable) processed and the costs of administration. During the last financial year, the following administration costs were incurred: Month Admin cost Month Admin cost No. of invoices 220 280 No. of invoices 440 620 330 Jan Feb Mar Apr May Jun Required: $3,150 $3,050 $3,750 $5,050 $4,400 $5,900 Jul Aug Sep Oct Nov Dec $4,450 $8,150 $5,150 $4,900 $4,500 $3,500 470 440 450 300 410 440 600 (a) Prepare a schedule of cost of goods manufactured and cost of goods sold. (b) Prepare an income statement. (c) Depreciation and other expenses on factory building ($170,000) includes $20,000 as the cost of electricity and it has been classified as a semi-variable cost by the management accountant. Identify possible reasons for this cost classification by the management accountant. (d) Use the high-low method to estimate the cost function for administrative costs and predict the administrative costs for a month where 300 invoices are processed. () Furniture Mart expects number of deliveries to be the cost driver of the company's transportation costs. The results of the regression analysis to estimate transportation costs are as follows: Regression Statistics Multiple R 0.789 R Square 0.645 Adjusted R Square 0.598 Standard Error 110.514 Observations 9 Coefficients P-value Standard Error 325.394 0.647 Intercept Number of deliveries 246.15 2.63 0.454 0.001 Interpret the above regression output, and construct a regression equation to describe the relationship between transportation cost and number of deliveries. Explain how confident you are with the cost equation in estimating future transportation costs. (8 + 4 + 3+ 6 + 4 = 25 marks)