A Manufacturer of an Automobile Part Has a Process That

question 130

Short Answer

A manufacturer of an automobile part has a process that is designed to produce the part with a target of 2.5 inches in length. In the past, the standard deviation of the length has been .035 inches. In an effort to reduce the variation in the process, the manufacturer has redesigned the process. A sample of 25 parts produced under the new process shows a sample standard deviation of .025 inches. Test the claim that the new process standard deviation has improved from the current process at α = .05.

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Definitions:

Denominator Level

In cost accounting, it refers to the total amount of allocation base (e.g., direct labor hours, machine hours) that is used to calculate the predetermined overhead rate.

Standard Cost System

A cost accounting method that assigns expected costs to products to help in setting budgets and analyzing cost variances.

Volume Variance

The variance that arises whenever the standard hours allowed for the actual output of a period are different from the denominator activity level that was used to compute the predetermined overhead rate. It is computed by multiplying the fixed component of the predetermined overhead rate by the difference between the denominator hours and the standard hours allowed for the actual output.

Variable Manufacturing Overhead

Costs that fluctuate with production volume, such as indirect materials, indirect labor, and other expenses that increase or decrease as production levels change.