Question

Ethics: Manipulating Data to Establish a Budget (Appendix). Healthy Bar, Inc., produces energy bars for sports enthusiasts. The company’s fiscal year ends on December 31. The production manager, Jim Wallace, is establishing a cost budget for the production department for each month of this coming quarter (January through March). At the end of March, Jim will be evaluated based on his ability to meet the budget for the three months ending March 31. In fact, Jim will receive a significant bonus if actual costs are below budgeted costs for the quarter.

The production budget is typically established based on data from the last 18 months. These data are as follows:

Reporting Period (Month)	Total Overhead Costs	Total Machine Hours
July	$695,000	3,410
August	700,000	3,454
September	665,000	2,453
October	725,000	3,740
November	655,000	2,442
December	672,500	2,695
January	687,500	2,937
February	715,000	3,652
March	625,000	2,200
April	632,500	2,244
May	650,000	2,255
June	702,500	3,520
July	730,000	3,542
August	735,000	3,597
September	697,500	2,552
October	762,500	3,894
November	687,500	2,541
December	705,000	2,805

You are the accountant who assists Jim in preparing an estimate of production costs for the next three months. You intend to use regression analysis to estimate costs, as was done in the past. Jim expects that 3,100 machine hours will be used in January, 3,650 machine hours in February, and 2,850 machine hours in March.

Jim approaches you and asks that you add $100,000 to production costs for each of the past 18 months before running the regression analysis. As he puts it, “After all, management always takes my proposed budgets and reduces them by about 10 percent. This is my way of leveling the playing field!”

Use Excel to perform regression analysis after adding $100,000 to production costs for each of the past 18 months, as Jim requested. Submit a printout of the results.Use the regression output to develop the cost equation Y = f + vX by filling in the dollar amounts for f and v.Calculate estimated production costs for January, February, and March. Also provide a total for the three months.

Answer 1

Answer

Answer a Linear regression approach 100,000 Total Overhead Costs Months Total Machine Hours July 3,410 795,000 August September October 3,454 2,453 3,740 800,000 765,000 825,000 November December January February March April May June Ju 2,442 2,695 2,937 3,652 2,200 2,244 2,255 3,520 3,542 755,000 772,500 787,500 815,000 725,000 732,500 750,000 802,500 830,000 August September October 3,597 2,552 3,894 835,000 797,500 862,500 November 2,541 2,805 787,500 805,000 December INTERCEPT(C58:C75,B58:B75 SLOPE(C58:C75,B58:B75 Interce 627,397 54.69 Rounded to 2 decimal Production cost ($627,397+$54.69 x Where x is the number of hours required Answer b machine hours x- Production cost-($627,397+$54.69 x March Total 2,850 Jan Feb 3,100 3,650 9,600 Fixed Variable 54.69 x X Production cost 627,397 169,539$ 796,936$ 627,397 627,397 1,882,191 199,619 155,867 525,024 827,016 783,264 2,407,215