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Background information: You have been hired b...




Background information: You have been hired by Barb?s Cool Cars, Inc., to help them analyze their cost accounting function. Barb opened her business in the early 1980s, making reproductions of classic cool cars including ?Bathtub Porsches?, 1965 T-Birds, 1965 Mustangs, and 1920?s Bentleys. In the early days, Barb?s used old Volkswagen bugs and readily available modification kits which were really only aesthetic changes. However, over time, Barb?s became famous for their willingness to customize the appearance of kit cars far more than other reproduction car fabricators and also to modify performance . Of course, Barb?s employs mechanics and auto body specialists. However, in addition, Barb employs or has on retainer, ? an artist ? a local paint manufacturer to match unusual color requests ? an engineer who designs and installs convertible tops for cars that were manufactured as sedans ? a tanner who will prepare leather to a client?s specifications. About 10 years ago, Barb?s went international based on a simple idea. A large variety of automobiles are available in other countries but not in the U. S. Of course, some U. S citizens would like to buy these cars. There are two common reasons these cars are not available in the U. S. ? First, the cars may be so expensive that the manufacturers are not willing to crash test the cars as required for U. S. distribution. These autos can be brought into the U. S. from abroad by those who already own them, but may not be sold here. To meet demand for these autos, Barb?s opened an international division. Barb?s uses an unusual marketing plan to bring these autos to the American market. Buyers fly to one of Barb?s international locations, purchase the car, and drive it during an extended vacation. During the visit, Barb?s took care of all the arrangements for the tourist to import the car to the U. S. At the end of their trip, Barb?s ships the car to the U. S. for the tourist to pick up at the nearest international port. ? Second, the automobiles may not pass U. S. pollution standards. These cars must be modified before they can be imported. Barb?s purchases the cars, makes the necessary modifications, and then either imports the cars for sale within the U. S. or sells them to tourists as described above. Last year, Barb added ?faux? 2009 Buggatti Veyrons to the sales mix. .Though the Veyron?at 252 mph the fastest production automobile in the world--is too new to be a classic, it is well on its way. The car amazed a series of professional test drivers when it was introduced in 2006. For example, Jeremy Clark (New York Times, Sunday November 27, 2005) declared the Veyron to be ?Utterly, stunningly, jaw dropping brilliant.? Of course, few can afford its approximate $1.13 million price tag. Barb saw an opportunity. A lot of people might like a car that looked like a Veyron, even if it wasn?t really one. Barb?s fabricated and patented a Veyron kit car. So, at present, Barb?s has two distinct departments with four product lines. ? They purchase the Volkswagens or Miatas, and then customize them to a smaller or larger degree, with kits they purchase or produce. ? They also sell cars which are unavailable in the U. S. because of safety or pollution issues through an international division. Assignment: Barb has asked for your help in recommending a ?best practice? costing system. She thinks the current cost system, which is a job order system with overhead application based on direct materials cost, no longer is providing the information the company needs to know how to make bids or price completed orders. At your request, Barb?s has provided monthly information about costs and several potential cost drivers for the past three. Brief descriptions of the accounts are as follows. ?Overhead costs? is the total overhead cost in that month. ?Units sold? is the number of units sold that month. ?Labor hours? and ?machine hours? represent the number of each activity in that month. ?Materials? are the total raw material costs incurred in a given month. ?Modified? is the number of autos sold each month that were modified to meet US emissions and safety regulations. ?Veyron? is the number of Veyron replicas sold that month. ?Consultant charges? is the total amount paid to all consultants for sales that month. ?Truly custom? is the number of cars sold that month that are considered highly customized. Data - see attached 1. For each of the seven potential cost drivers (units through consultant charges) do each of the following: a) Prepare a scatter plot. The y axes should be overhead costs, and the x axes will be one of the potential cost drivers. Drop in a trend line. Please make separate charts for each cost driver, because putting them together makes it too hard for me to read. b) Using regression commands, find the slope, R squared, and intercept based upon the entire 36 months of data. Do the same work, but using only the most recent 12 months of data. Display these results in the spreadsheet in an organized manner. c) Find the overhead application rate that would be used for each potential cost driver, based upon the entire 36 months of date, and again for the past 12 months only. Display these results in the spreadsheet as well. 2) Prepare a word document answering the following questions a) Based solely on the scatterplot appearance, without reference to the numbers you developed with the regression analysis, comment on the appropriateness of each potential cost driver. b) Based on the scatterplots, the regression information, and the information in the background materials, choose the best cost driver. Explain your choice, including a discussion of why other cost drivers were not chosen. c) Assume that the original cost driver was appropriate when the business was opened back in the mid-1980s. Have you chosen the same cost driver now? If so, why do you believe that this is still the best cost driver? If not, why do you think the best cost driver has changed over time? d) Using the model you have chosen, and the appropriate activity level as given below, estimate total overhead costs using the regression equation. Activity Level Information: Units 2000 Labor Hours 3000 Machine Hours 800 Materials $257,000 Number of veyrons 5 Modified 12 Consultant charges $53,000 d) Describe in a good level of detail a cost accounting system that would fit Barb?s needs well. Be sure to use your textbook as a reference in finding and describing several choices that need to be made. Explain why you made the choices you did.,Yes, you can omit the column "truly custom".


Paper#7552 | Written in 18-Jul-2015

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