# Cortez Company is planning to introduce a new product that will sell for \$108 a unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year; Manufacturing overhead costs have not yet been estimated for the new product, but monthly date on total production and overhead costs for the post 24 months have been analyzed using simple linear regression. The following results were derive from the simple regression and provide the basis for overhead cost estimates for the new product. What percentage of the variation in overhead costs is explained by the independent variable? 82.8% 91.1% 99.4% 74.5% None of the above. What is the total overhead cost for an estimated activity level of 60,000 direct labor-hours? \$410,000. \$420,000. \$400,000. \$430,000.

Question: What percentage of the variation in overhead costs is explained by the independent variable

Explanation:

= 0.848 (84.8%), the explanation of variation in Y from the X regress

Question: What is the total overhead cost for an estimated activity level of 60,000 direct labor-hours

Explanation:

The equation resulting from this regression analysis is:

Total overhead = Estimated fixed cost + Estimated variable cost per labor hour x Labor hours

= Intercept estimate + Coefficient estimate on independent variable x 60,000 DLH

= 110000 + 5 x 60000 DLH

= 110000 + 300000

= 410000

Here is the full question with the appropriate tables.

Cortez Company is planning to introduce a new product that will sell for \$108 a unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year;

Direct Materials                     \$700,000

Direct Labor                           \$720,000    (= \$18 per hour × 40,000 hours)

Manufacturing overhead costs have not yet been estimated for the new product, but monthly date on total production and overhead costs for the post 24 months have been analyzed using simple linear regression. The following results were derive from the simple regression and provide the basis for overhead cost estimates for the new product.

Simple Regression Analysis  Results.

Dependent  variable-Factory overhead cost-Independent Variable-Direct labor hours Computed values

Intercept                                                                             \$ 120,0000

Coefficient on independent variable                               \$ 5.00

Coefficient of correlation                                                   .920

R²                                                                                         .828

What percentage of the variation in overhead costs is explained by the independent variable? 82.8% 91.1% 99.4% 74.5% None of the above.

What is the total overhead cost for an estimated activity level of 60,000 direct labor-hours?

\$410,000.

\$420,000.

\$400,000.

\$430,000.

R² = 82.8%

\$420,000

Explanation:

Given that:

R² = .828

The percentage of the variation in overhead costs explained by the independent variable in Y from the X regressor = %

= 82.8%

Given that:

direct labor-hours = 60,000

To calculate the Total overhead cost; we have:

(Total overhead) to be = Estimated fixed cost + estimated variable cost per

labor hour × labor-hours

= Intercept estimate + Coefficient estimate on

independent  variable × 60,000 direct labor-hours

= \$120,000 + (\$5 × 60,000) direct labor-hours

= \$120,000 + \$300,000

= \$420,000

∴  the total overhead cost for an estimated activity level of 60,000 direct labor-hours = \$420,000.

## Related Questions

The simplest remedy available to the ftc against firms charged with false, misleading, or deceptive advertising is __________ . cease and desist order consent decree corrective advertising fines

The simplest remedy available to the FTC against firms charged with false, misleading, or deceptive advertising is consent decreeA consent decree is defined as an agreement or settlement that ends s dispute between two or ore parties without anyone admitting to being guilty or liable of actions. This is one of the main types of settlements that happens within the United States.

Pei's savings account balance is \$12,000 today. Pei opened the account exactly 7 years ago with a \$10,000 deposit. Pei has made no other deposits or withdrawals. What annual interest rate (compounded annually) has the account earned?

2.64%

Explanation:

A = P(1 + r)^n

A = \$12,000

P = \$10,000

n = 7 years

12,000 = 10,000(1 + r)^7

(1 + r)^7 = 12,000/10,000 = 1.2

(1 + r)^7 = 1.2

1 + r = (1.2)^1/7

I + r = 1.0264

r = 1.0264 - 1 = 0.0264

r = 0.0264 × 100 = 2.64%

Gallardo Co. is involved in a lawsuit as a result of an accident that took place September 5, 2017. The lawsuit was filed on November 1, 2017 and claims damages of \$1,000,000. (a) At December 31, 2017, Gallardo's attorneys feel it is remote that Gallardo will lose the lawsuit. How should the company account for the effects of the lawsuit? (b) Assume instead that a December 31, 2017, Gallardo's attorney feel it is probable that Gallardo will lose the lawsuit and be required to pay \$1,000,000. How should the company account for this lawsuit? (c) Assume instead that at December 31, 2017, Gallardo's attorneys feel it is reasonably possible that Gallardo could lose the lawsuit and be required to pay \$1,000,000. How should the company account for this lawsuit?

Following are the solution to the given points:

Explanation:

In point a, As it would be impossible that although the failure of the lawsuit is remote, the same cannot be recorded as well as avoided.

In point b, Its prosecutor thinks Gallardo's failure of the case (which would be likely to occur) is therefore likely to be reported throughout the books, that legal expenses must be paid and the civil responsibility measured at \$10,00000 credited.

In point c, In the case is fairly probable, this can occur only if it is reported throughout the corresponding Balance Sheet accounts.

Gallardo Co.'s response to the lawsuit depends on their attorneys' opinions. If it's remotely believed that the company will lose, no need to recognize the liability or disclose it in financial statements. If the loss is estimated as probable, recognize the \$1,000,000 liability and expense; if reasonably possible, no liability needs to be recognized, but disclosure in the financial statement notes is needed.

### Explanation:

By the Generally Accepted Accounting Principles (GAAP), Gallardo Co. should account for the lawsuit differently based on the attorneys' estimation of loss.

(a) If the attorney's opinion is that it's remote that Gallardo will lose the suit, the company doesn't have to make a provision or disclose it in its financial statements. Since they believe the likelihood of loss is minimal, no liability needs to be recognized.

(b) If the attorney believes it's probable that Gallardo will lose, then according to GAAP, the company will have to recognize a liability of \$1,000,000 and record a lawsuit expense in the income statement.

(c) If it's reasonably possible that Gallardo could lose, the company doesn't have to recognize a liability, but it should disclose the lawsuit and the potential financial impact in the notes to its financial statements.

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Suppose you purchase twelve call contracts on Macron Technology stock. The strike price is \$65, and the premium is \$2.30. If, at expiration, the stock is selling for \$71 per share, what are your call options worth? What is your net profit? (Omit the "\$" sign in your response.)

Call option worth = 6

Net profit = 3.7

Explanation:

Call option worth and net profit can be calculated as follows

DATA

Strike price = 65

Selling price = 71

Call option worth =?

Net profit =?

Requirement A: Call option worth

Solution

Call option worth = Selling price - strike price

Call option worth = 71 - 65

Caall option worth = 6

Requirement B Net profit

Solution

Net profit = Selling price - (Strike price + Premium)

Net profit = 71 - (65 + 2.3)

Net profit = 71 -67.3

Net profit = 3.7

Call option worth = \$6

Net Profit = \$3.70

Explanation:

The strike price of the option is \$65

The amount of premium = \$2.30

The selling price = \$71

Call option worth = Current Price - Strike price

Call option worth = \$71 - \$65

Call option worth = \$6

Net Profit = Selling Price - (Strike price + Premium)

Net Profit = \$71 - (\$65 + \$2.30)

Net Profit = \$71 - \$67.30

Net Profit = \$3.70

The structure of repayment for most long-term bonds consists of a. fixed coupon payments every year until maturity. b. interest payments that vary by the yield to maturity each year. c. fixed coupon payments each year plus the face value or par value at maturity. d. converted payments from interest to dividends halfway to the bond's maturity. e. a balloon payment at maturity.

The correct answer is letter "B": interest payments that vary by the yield to maturity each year.

Explanation:

Bonds are investments in the form of loans that companies provide. The firm pays investors a coupon yield, which is the annual or semiannual interest paid on the principal of the bond purchased. The payments continue until the bond reaches its maturity or the amount of the principal is completely paid off.

Which one of the following statements is TRUE?(A) One tool of corporate governance is choosing a good investment banker.
(B) One tool of corporate governance is how the company's charter affects the likelihood of a takeover.
(C) One tool of corporate governance is a company's tax avoidance strategy.
(D) Creditors have a claim on a firm's earning stream through the dividend payments they receive.
(E) One tool of corporate governance is stock repurchases.