QUESTION 2 (25 MARKS) (a) Describe the following cost estimation methods:- (1) Industrial engineering method (3 marks) Conference method (3 marks) (111) Account analysis method (3 marks) (6) (3 + 3 + 3 = 9 marks) Solid Furniture has collected cost information from its production process and now wants to predict costs for various levels of activity. They plan to use the cost equation to formulate these predictions. Information gathered from January is presented in Table 1 below. Table 1: Cost Information for Solid Furniture Cost Incurred Plant supervisor salary Lumber (direct materials) Production worker wages Machine maintenance Lease on factory Fixed or Variable Fixed Variable Variable Variable Fixed Marck Cost $12,000 per month $75,000 in total $11.00 per hour $5.00 per unit produced $15,000 per month In January, Solid Furniture produced 1,000 units and used 2,000 hours of production labor. The usage of lumber as the direct materials varies with the volume of production. Required: Using this information and the cost equation, predict Solid Furniture's total costs for the levels of production in Table 2 below for month February, March & April. Table 2: Solid Furniture's Levels of Production Month February March April Activity Level 1,500 units 2.000 units 2.500 units (8 marks) A & L specialises in manufacturing bicycles - classic, standard and executive series. Currently, the management is in the process of determining if there is a relationship between machine hours and maintenance costs. The management obtains the following monthly information for the past 6 months: May June July August September October Machine Hours 7,000 5,500 7,500 6,000 9,200 6,800 Maintenance Costs $67,000 $57,000 $74,000 $58,000 395,000 $68,000 In addition, a regression analysis was performed to estimate the cost function and the following results were generated: Regression Statistics R Square - 0.933644 Adjusted R Square = 0.927884 Standard Error = 587.468531 Observations = 6 Coefficients Intercept = 51638.65897 Slope = 1.928433 Using the results of the Regression Analysis method Determine an estimate of variable maintenance costs per machine hour. (1 mark) (11) Determine an estimate of fixed maintenance costs per month. (1 mark) Develop a cost function for monthly maintenance costs. (2 marks) Estimate the maintenance costs for a month in which 550 machine hours are worked using the cost function in requirement (ii) above. (2 marks) (1) Comment on the goodness of fit of the above cost function. (2 marks) (1 + 1 + 2 + 2 + 2 = 3 marks) [Total = 25 marks]