A hospital is analyzing its overhead costs. It is not clear whether the number of patient days or nursing hours
would be the best cost driver to use in predicting the hospital's overhead. The latest information on the hospital is as follows:
Month Hospital Nursing No. of Overhead Overhead Cost
Overhead Hours Patient Cost Per Per Patient
Costs Days Nursing Hr. Day
July $950,000 50,000 7,900 $19.00 $120.25
August $1,070,000 52,000 8,900 $20.58 $120.22
September $825,000 40,000 8,700 $20.63 $ 94.83
October $922,500 43,500 6,900 $21.21 $133.70
November $1,150,000 64,000 11,900 $17.97 $ 96.64
December $890,000 41,500 6,750 $21.45 $131.85
Graph the hospital's overhead costs against the number of patient days.
- Graph the hospital's overhead costs against nursing hours.
- Based on the graphs that you drew, do the data appear to be straight forward or do you see any potential problems with the data (i.e, do the data points form straight lines)? Please explain.
- Using the high-low method, determine the hospital's variable cost per nursing hour, rounded to two decimal places.
- Now that you have calculated both the variable and fixed portions hospital overhead costs, write out the equation for hospital overhead costs using the high-low method.
- Using the cost equation that you just wrote, predict hospital overhead costs if 49,000 nursing hours are expended in a month.
- The hospital ran a regression analysis using nursing hours as the cost driver to predict total hospital overhead costs. The regression analysis produced the following data:
Round the variable portion of the regression equation formula to two decimal places. Based on the regression equation formula, what will the predicted total hospital overhead costs be if 49,000 nursing hours are expended during a month?
- The hospital then ran a regression analysis using number of patient days as cost driver. The regression analysis produced the following data:
Again, round the variable portion of the regression equation to two decimal places. If 8,500 patient days are predicted for a month, what is the total predicted hospital overhead costs using the regression equation?
- Which regression equation, the one using nursing hours as the cost driver or the one using patient days as the cost driver, produces the most accurate correlation (best explanation of) the predicted hospital overhead costs. How do you know that your answer is correct?
The Proportion Challenged Candy Co. makes and sells boxes of chocolate candy. Proportion has fixed expenses of $250,000 each month plus variable expenses of $5.25 per box of candy. Proportion sells each box of candy for $9.75.
- Compute the contribution margin of each box of candy.
- Compute the number of boxes of candy that Proportion must sell each month to break even. Round up to the nearest whole box.
- Compute the contribution margin ratio for a box of candy
- Compute the dollar amount of monthly sales Proportion needs to earn $300,000 in profit. (Round the contribution margin ratio to four decimal places. Round sales up to the nearest dollar.)
- Prepare Proportion's contribution margin income statement for December for sales of 260,000 boxes of candy.
- What is the degree of leverage for December sales of 260,000 boxes of candy? (Carry answer out to four decimal places.)
- What is December's margin of safety (in dollars and cents)?
- By what percentage will operating income change if December's sales volume is 23% higher? (Round to two decimal places.)
- Prove your answer by comparing the difference in operating income after the change with the operating income before the change.
Tinkle-Tinkle Glass Company makes glass globe paper weights for desks. The company uses a job-order cost system and predetermined overhead rates to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Fabrication Department is based on machine hours, and the rate in the Finishing Department is based on direct labor hours. At the beginning of the year, the company's management made the following estimates for the year:
Machine hours 84,000 27,000
Direct labor hours 28,000 44,000
Direct material cost $415,000 $214,000
Direct labor cost $300,000 $690,000
Fixed manufacturing overhead cost $800,000 $280,000
Variable manufacturing overhead per machine hour $2.25 --
Variable manufacturing overhead per direct labor hour -- $2.15
Job 25 (the Christmas holiday special) was started on September 1 and completed on September 30. The company's cost records show the following information concerning the job:
Machine hours 310 75
Direct labor hours 110 133
Direct materials cost $1,320 $1,050
Direct labor cost $910 1,095
- Compute the predetermined overhead rate used during the year in the Fabrication Department. (Round to two decimal places.) Be careful to use the proper cost driver.
- Compute the predetermined overhead rate used during the year in the Finishing Department. (Round to two decimal places.) Be careful to use the proper cost driver.
- Compute the total overhead cost applied to Job 25 (in dollars and cents).
- What would be the total cost recorded for Job 25? (Round to two decimal places.)
- If Job 25 contained 65 units, what would be the unit product cost? (Round to two decimal places.)
- If it contained 750 units, what would be the unit product cost? (Round to two decimal places.)
- At the end of the year, the records of Tinkle-Tinkle Glass revealed the following actual cost and
operating data for all jobs during the year:
Machines hours 85,900 30,000
Direct labor hours 32,500 29,000
Direct materials cost $425,000 $163,000
Manufacturing overhead cost $713,000 $288,000
What was the amount of actual overhead in each department at the end of the year? Was it underapplied or overapplied? four answers.