The Super company makes two products: Bowls and Heroes. Bowls sell for $20 each and Heroes sell for $40 each. Regression analysis, with machine hours as the cost driver, is used to estimate a variable MOH rate and total fixed MOH costs. Regression output follows:
Problem 1 (30 points) The Super company makes two products: Bowls and Heroes. Bowls sell for $20 each and Heroes sell for $40 each. Regression analysis, with machine hours as the cost driver, is used to estimate a variable MOH rate and total fixed MOH costs. Regression output follows: SUMMARY OUTPUT Regression Statistics Multiple R 0.811945513 R Square 0.659255515 Adjusted R Square 0.625181067 Standard Error 196.0677591 Observations 12 Intercept X Variable 1 Coefficients Standard Error t Stat P-value 7550.004697 179.6014378 4.094648161 0.002163025 12.00109437 2.628369856 4.398579728 0.00133803 The following data applies to units of Bowls and Heroes Bowls Heroes Direct materials $4.00 $7.00 Direct manufacturing labor $2.00 $4.00 Variable MOH ? ? Machine hours per unit 0.25 hours 0.4 hours Sales mix 6 4 Variable period costs $1.00 $1.70 Total fixed period costs $10,000 Required (Show your work): 1. Specify the MOH cost function (in the form of Y = a + bx) (2 points) 2. Evaluate the regression output in terms of (i) goodness of fit and (ii) significance of the independent variable. Include an explanation of each term (6 points) 3. Calculate the contribution margin per unit for Bowls and Heroes (6 points) 4. Calculate breakeven in units for the two products assuming the current sales mix (6 points) 5. Calculate operating income based on sales of 750 Bowls and 500 Heroes. Use a contribution margin format income statement approach (6 points) 6. If Super maintained the same total number of units sold but was able to increase the proportion of Heroes in the sales mix, would operating income increase, decrease or stay the same? Explain your answer. (4 points) Problem 1 (30 points) The Super company makes two products: Bowls and Heroes. Bowls sell for $20 each and Heroes sell for $40 each. Regression analysis, with machine hours as the cost driver, is used to estimate a variable MOH rate and total fixed MOH costs. Regression output follows: SUMMARY OUTPUT Regression Statistics Multiple R 0.811945513 R Square 0.659255515 Adjusted R Square 0.625181067 Standard Error 196.0677591 Observations 12 Intercept X Variable 1 Coefficients Standard Error t Stat P-value 7550.004697 179.6014378 4.094648161 0.002163025 12.00109437 2.628369856 4.398579728 0.00133803 The following data applies to units of Bowls and Heroes Bowls Heroes Direct materials $4.00 $7.00 Direct manufacturing labor $2.00 $4.00 Variable MOH ? ? Machine hours per unit 0.25 hours 0.4 hours Sales mix 6 4 Variable period costs $1.00 $1.70 Total fixed period costs $10,000 Required (Show your work): 1. Specify the MOH cost function (in the form of Y = a + bx) (2 points) 2. Evaluate the regression output in terms of (i) goodness of fit and (ii) significance of the independent variable. Include an explanation of each term (6 points) 3. Calculate the contribution margin per unit for Bowls and Heroes (6 points) 4. Calculate breakeven in units for the two products assuming the current sales mix (6 points) 5. Calculate operating income based on sales of 750 Bowls and 500 Heroes. Use a contribution margin format income statement approach (6 points) 6. If Super maintained the same total number of units sold but was able to increase the proportion of Heroes in the sales mix, would operating income increase, decrease or stay the same? Explain your answer. (4 points)
