Author Question: If revenues are larger than expenses, the resulting net income would be recorded a. on the credit ... (Read 54 times)

Evvie72 · **on:** Jul 6, 2018

If revenues are larger than expenses, the resulting net income would be recorded
a. on the credit side of the income statement columns of the work sheet.
b. on the debit side of the balance sheet columns of the work sheet.
c. on the debit side of the income statement columns of the work sheet.
d. none of the answers listed.

Question 2

Cost estimation.

Hankuk Electronics started production on a sophisticated new smartphone running the Android operating system in January 2013. Given the razor-thin margins in the consumer electronics industry, Hankuk's success depends heavily on being able to produce the phone as economically as possible.
At the end of the first year of production, Hankuk's controller, Inbee Kim, gathered data on its monthly levels of output, as well as monthly consumption of direct labor-hours (DLH). Inbee views labor-hours as the key driver of Hankuk's direct and overhead costs. The information collected by Inbee is provided below:

Required:
1. Inbee is keen to examine the relationship between direct labor consumption and output levels. She decides to estimate this relationship using a simple linear regression based on the monthly data. Verify that the following is the result obtained by Inbee:

2. Plot the data and regression line for the above estimation. Evaluate the regression using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
3. Inbee estimates that Hankuk has a variable cost of 17.50 per direct labor-hour. She expects that Hankuk will produce 650 units in the next month, January 2014. What should she budget as the expected variable cost? How confident is she of her estimate?

GCabra · **Reply #1 on:** Jul 6, 2018

Answer to Question 1

C

Answer to Question 2

1. Here is the summary output for the monthly regression of Direct Labor Hours on Output Units for Hankuk Electronics:

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.2333602
R Square 0.054457
Adjusted R Square 0.0400973
Standard Error 206.18345
Observations 12

ANOVA
df SS MS F Significance F
Regression 1 24483.86 24483.86 0.575933 0.465422344
Residual 10 425116.1 42511.61
Total 11 449600

Coefficients Standard Error t Stat P-value Lower 95 Upper 95
Intercept 345.24 589.07 0.59 0.57 967.29 1657.77
X Variable 1 0.71 0.93 0.76 0.47 1.37 2.79

2. The plot and regression line for monthly direct labor hours on monthly output for Hankuk Electronics are given below:

Economic
plausibility A positive relationship between direct labor hours and monthly output is economically plausible because increased levels of production should lead to the consumption of greater amounts of direct labor.

Goodness of fit r2 = 5.45, Adjusted r2 = - 4
Standard error of regression = 206.18
Terrible fit; in fact, there is no evidence of a linear relationship between the dependent and independent variables. At least one data point represents a significant outlier.

Significance of independent
variables The t-value of 0.76 for output units is not significant at the 0.05 level.

3. Given Inbee's expectation that Hankuk will produce 650 units in January 2014, her best estimate given the linear regression above is that Hankuk will use:

345.24 + (0.71 650 units) = 806.74 direct labor hours.

At an estimated variable cost of 17.50 per direct labor-hour, this implies that Inbee should budget

806.74 17.50 = 14,118

for direct labor costs for January 2014.

Note that 650 units is in the range of output values that were used to find the regression equation and therefore falls in the range of predictability for this model. However, there is substantial uncertainty around the cost estimate of 14,118. In particular, this predicted value relies on the regression point estimate of 0.71 for the marginal impact of output on labor hours. But, the 95 percent confidence interval for the slope of the regression ranges all the way from 1.37 to 2.79, and the predicted cost would vary accordingly. One cannot reject the null hypothesis that output levels have no impact on labor consumption, leaving the budgeted cost estimate a highly speculative one