Flexible Budget, Multiple Regression The controller for Muir Company\'s Salem pl
ID: 2517652 • Letter: F
Question
Flexible Budget, Multiple Regression
The controller for Muir Company's Salem plant is analyzing overhead in order to determine appropriate drivers for use in flexible budgeting. She decided to concentrate on the past 12 months since that time period was one in which there was little important change in technology, product lines, and so on. Data on overhead costs, number of machine hours, number of setups, and number of purchase orders are in the following table.
Required:
1. Run a multiple regression equation using machine hours, number of setups, and number of purchase orders as independent variables. Prepare a flexible budget for overhead for the 12 months using the results of this regression equation. (Round the regression coefficients to the nearest cent and predicted overhead to the nearest dollar.)
If there is no variance, enter "0" for the amount and select "NA" in the last column. Enter all your answers as positive amounts.
2. Now, suppose that the controller remembers that the factory throws two big parties each year, one for the 4th of July and the other for Christmas. Rerun the multiple regression with machine hours, number of setups, and number of purchase orders, and add a dummy variable called “Party.” (This variable takes the value one for months with a factory-sponsored party, and zero otherwise.) Prepare a flexible budget for the 12 months using the results of this regression. (Round the regression coefficients to the nearest cent and each predicted overhead amount to the nearest dollar.)
If there is no variance, enter "0" for the amount and select "NA" in the last column. Enter all your answers as positive amounts.
Month Overhead Costs Machine Hours Number ofSetups Number of
Purchase Orders January $ 32,296 1,000 20 216 February 31,550 930 18 250 March 36,280 1,100 21 300 April 36,867 1,050 23 270 May 36,790 1,170 22 285 June 37,800 1,200 25 240 July 40,024 1,235 27 237 August 39,256 1,190 24 303 September 33,800 1,070 20 255 October 33,779 1,210 22 195 November 37,225 1,207 23 270 December 27,500 1,084 15 150 Totals $423,167 13,446 260 2,971
Explanation / Answer
Answer:1 Overhead rate=Total overhead cost/Total estimated machine hours
=$423167/13446
=$31.47 per hour
Month
Machine hours
Predicted overhead
Actual Overhead
Variance
Type F or U
Jan
1000
31470
32296
-826
U
Feb
930
29267.1
31550
-2282.9
U
Mar
1100
34617
36280
-1663
U
Apr
1050
33043.5
36867
-3823.5
U
May
1170
36819.9
36790
29.9
F
Jun
1200
37764
37800
-36
U
Jul
1235
38865.5
40024
-1158.6
U
Aug
1190
37449.3
39256
-1806.7
U
Sep
1070
33672.9
33800
-127.1
U
Oct
1210
38078.7
33779
4299.7
F
Nov
1207
37984.3
37225
759.29
F
Dec
1084
34113.5
27500
6613.48
F
Total
13446
423146
423167
-21.38
U
Answer2:
Overhead cost= $8699.64+ $23.71(machine hours)
Month
Machine hours
Predicted overhead
Actual Overhead
Variance
Type F or U
Jan
1000
32410
32296
114
F
Feb
930
30750
31550
800
U
Mar
1100
34781
36280
1499
U
Apr
1050
33595
36867
3272
U
May
1170
36440
36790
350
U
Jun
1200
37152
37800
648
U
Jul
1235
37981
40024
2043
U
Aug
1190
36915
39256
2341
U
Sep
1070
34069
33800
269
F
Oct
1210
37389
33779
3610
F
Nov
1207
37318
37225
93
F
Dec
1084
34401
27500
6901
F
Total
13446
423201
423167
34
F
Answer:1 Overhead rate=Total overhead cost/Total estimated machine hours
=$423167/13446
=$31.47 per hour
Month
Machine hours
Predicted overhead
Actual Overhead
Variance
Type F or U
Jan
1000
31470
32296
-826
U
Feb
930
29267.1
31550
-2282.9
U
Mar
1100
34617
36280
-1663
U
Apr
1050
33043.5
36867
-3823.5
U
May
1170
36819.9
36790
29.9
F
Jun
1200
37764
37800
-36
U
Jul
1235
38865.5
40024
-1158.6
U
Aug
1190
37449.3
39256
-1806.7
U
Sep
1070
33672.9
33800
-127.1
U
Oct
1210
38078.7
33779
4299.7
F
Nov
1207
37984.3
37225
759.29
F
Dec
1084
34113.5
27500
6613.48
F
Total
13446
423146
423167
-21.38
U
Answer2:
Overhead cost= $8699.64+ $23.71(machine hours)
Month
Machine hours
Predicted overhead
Actual Overhead
Variance
Type F or U
Jan
1000
32410
32296
114
F
Feb
930
30750
31550
800
U
Mar
1100
34781
36280
1499
U
Apr
1050
33595
36867
3272
U
May
1170
36440
36790
350
U
Jun
1200
37152
37800
648
U
Jul
1235
37981
40024
2043
U
Aug
1190
36915
39256
2341
U
Sep
1070
34069
33800
269
F
Oct
1210
37389
33779
3610
F
Nov
1207
37318
37225
93
F
Dec
1084
34401
27500
6901
F
Total
13446
423201
423167
34
F
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