10) The manager at Elegant Rugs used regression analysis and reported the following cost function to predict future indirect manufacturing labor costs:
y
= $300.98 + ($10.31 per machine hour × 25 machine hours)
What is the cost driver?
11) Why do managers prefer to collect data related to costs and cost drivers over longer time periods?
12) The Hallman Organization sells units of glass to manufacturers. The manager uses prices that are set by the market. The manager expects to sell 650 units of glass each week. The managerial accountant estimated that the company needs 72 machine-hours and 21 direct manufacturing labor-hours each week to produce 650 units of glass.
Hallman Organization would predict indirect manufacturing labor costs using the machine-hour regression equation of:
y
= $300.98 + ($10.31 per machine hour × 72 machine hours) = $1,043.30.
Review the regression equation if the manager used direct manufacturing labor-hours as the cost driver:
y
= $744.67 + ($7.72 per labor hour × 21 labor hours) = $906.79
Required:
Discuss the impact on cost if the managerial accountant used the direct manufacturing hours as the cost driver versus the indirect labor costs.
13) Why is the cost hierarchy important to managerial accountants?