Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Olathe, KS

Tessmer Manufacturing Company produces inventory in a highly automated assembly plant in Olathe, KS. The automated system is in its first year of operation and management is still unsure of the best way to estimate the overhead costs of operations for budgetary purposes. For the first six months of operation, the following data was collected:

Machine-hours Kilowatt-hours Total Overhead Costs
January 3,800 4,520,000 $138,000
February 3,650 4,340,000 136,800
March 3,900 4,500,000 139,200
April 3,300 4,290,000 136,800
May 3,250 4,200,000 126,000
June 3,100 4,120,000 120,000

Question 1: Use the high-low method to determine the estimating cost function with machine-hours as the cost driver.

Question 2: Use the high-low method to determine the estimating cost function with kilowatt-hours as the cost driver.

Question 3: For July, the company ran the machines for 3,000 hours and used 4,000,000 kilowatt-hours of power. The overhead costs totaled $114,000. Which cost driver was the best predictor for July?


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Case 9-42: Comprehensive Master Budget, Borrowing, Acquisition of Automated Material-Handling System

Case 9-42: Comprehensive Master Budget, Borrowing, Acquisition of Automated Material-Handling System

We really need to get this new material-handling equipment in operation just after the New Year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank.” This statement by Beth Davies-Lowry, president of Global Electronics Company, concluded a meeting she had called with the firm’s top management.

AND SO ON

Check Figures:
1. Sales in Account, First Quarter: $2,184,600
3. Purchases, First Quarter: $2,103,640
5. Cash Receipts, First Quarter: $2,734,060
7. Net Income: $321,312

Click here for the solution: Case 9-42: Comprehensive Master Budget, Borrowing, Acquisition of Automated Material-Handling System