Balcom Enterprises Is Planning to Introduce a New Product That

question 26

Multiple Choice

Balcom Enterprises is planning to introduce a new product that will sell for $110 a 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:

$$\begin{array} { | l | l | } \hline \text { Dependent wariable } & \text { Factory overhead costs } \\\hline \text { Independent variable } & \text { Direct labor hours } \\\hline \text { Intercept } & \$ 120,000 \\\hline \text { Coefficient on independent } & \$ 5.00 \\\text { variable } & \\\hline \text { Coefticient of correlation } &0.911 \\\hline \text { R } ^ { 2 } & 0.814 \\\hline\end{array}$$
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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Definitions:

Job-order Costing

A cost accounting system that assigns manufacturing costs to an individual product or batches of products, ideal for customized orders.

Work in Process

Inventory that includes goods partially completed but not yet ready for sale, situated between raw materials and finished goods.

Direct Labour

The labor costs directly associated with the production of goods, easily traceable to the manufacturing process.

Direct Materials

Fundamental elements that can be directly connected to the manufacturing of a specific item.