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Analyzing Direct Costs

And lastly, Quality Control and Testing has a labor rate of $10.00. When multiplied by the projected 500 labor hours this give you a total of $5,000. Adding the totals of these five jobs together we have $3,625 + $16,400 + $11,250 + $6,750 + $5,000, which is an estimated total labor cost of 43,025. I then divided this total by the total projected labor hours of 5000 to come up with the weighted average cost of $8.61 (rounded up). The direct manufacturing labor cost objective (Question 2) would be this weighted average time projected hours which is a cost objective of $43,015. To estimate the material cost for the Far-Out Products task (Question 1), I took the proposed labor hours figure of 1800 and multiplied by the $41 simple average, which comes from the total material dollars expended divided by the total labor hours for the last five projects, for a total of $73,800. Using the regression analysis (Question 2), I put the 1800 labor hours into the equation, which was determined as $24,117 + $25.74 multiplied by the labor hours. and the estimate I came up with was $70,449. To answer Question 3, the first estimate appears more accurate in relation to the data from past projects. This could be due to the fact that the r2 of .988 is not necessarily a perfect fit for the regression model, since the r2 does not equal 1, though it is very close to 1. I would use the first estimate because it is based on the average of the last five projects. In the Material Sampling case, since the item is overpriced by $20,000 (Question 1), I reduced the estimate of $620,000 for the 20 high-cost items down to $600,000. And because the sample of the other 480 items is overpriced by 6 percent (Question 2), I took the total of $180,200 and added a 106% increase, giving a total of $191,012. So the estimate for total material cost (Question 3) would be $600,000 plus $191,012; which is a total material cost estimate of $791,012. Even with the 106% increase for the 480 smaller items, this estimate is still less than the original estimate $800,200. This is because the one high-cost item was overpriced by $20,000. For the DeLoan Corporation, the 6-month moving average estimated scrap rate (Question 1) equals scrap for the month divided by material for the month. Dividing these for each month gives you 5.5% for February + 6.09% for March + 6.19% for April + 6.52% for May + 6.02% for June + 5.72% for July. We don’t have to factor in the January scrap rate since that was 7 months ago and we are only concerned with the last six months. So dividing these percentages by 6, we come up with a 6-month moving average scrap rate of 6.0133%. Using this scrap rate to figure out how much total product is needed if the finished product is $90,000 (Question 2), I took 106.0133%, which is 100% plus the rate calculated from question 1, and multiplied it by that $90,000, coming up with a total material estimate of $95,412 (rounded up). To answer Question 3, yes this is a reasonable estimate since it is based on the average scrap metal rate of the previous six months and one could expect that the actual number will be close to this estimate. FIFO stands for First-In, First-Out, meaning that inventory is calculated as first-come, first-serve. The product that is produced first goes out first using this method. For the Mason Inventory data, the FIFO inventory value charged (Question 1) would be the first value listed, which is $10. I took this rate and multiplied it
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Author : lschroeder

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