Balcom Enterprises Is Planning to Introduce a New Product That

question 11

Multiple Choice

Balcom Enterprises is planning to introduce a new product that will sell for $110 per unit. Manufacturing cost estimates for 20,000 units for the first year of production are:
? Direct materials $1,000,000.
? Direct labor $720,000 (based on $18 per hour × 40,000 hours) .
Although overhead has not be estimated for the new product, monthly data for Balcom's total production for the last two years has been analyzed using simple linear regression. The analysis results are as follows:
$\begin{array}{lrr}\text {Dependent variable}&\text {Factory overhead costs}\\\text {Independent variable}&\text {Direct labor hours}\\\text { Intercept } & \$ 120,000 \\\text { Coefficient on independent variable } & \$ 5.00 \\\text { Coefficient of correlation } & 0.911 \\\text { R }^2 & 0.814\end{array}$


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Based on this information, how much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs) ?

• A) $78
• B) $91
• C) $96
• D) $71

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