Regression, activity-based costing, choosing cost drivers. Sleep Late, a large hotel chain, has been using activity-based costing to determine the cost of a night’s stay at their hotels. One of the activities, “Inspection,” occurs after a customer has checked out of a hotel room. Sleep Late inspects every 10th room and has been using “number of rooms inspected” as the cost driver for inspection costs. A significant component of inspection costs is the cost of the supplies used in each inspection. Mary Adams, the chief inspector, is wondering whether inspection labor-hours might be a better cost driver for inspection costs. Mary gathers information for weekly inspection costs, rooms inspected, and inspection labor-hours as follows: Week Room Inspected Inspection Labor-Hours Inspection Costs 1 254 66 $1,740 2 322 110 $2,500 3 335 82 $2,500 4 431 123 $2,800 5 198 48 $1,400 6 239 62 $1,690 7 252 108 $1,720 8 325 127 $2,200 Mary runs regressions on each of the possible cost drivers and estimates these cost functions: Inspection Costs=$193.19+($6.26×Number of rooms inspected) InspectionCosts=$944.66+($12.04×Inspectionlabor-hours) Question: Explain why rooms inspected and inspection labor-hours are plausible cost drivers of inspection costs. lot the data and regression line for rooms inspected and inspection costs. Plot the data and regression line for inspection labor-hours and inspection costs. Which cost driver of inspection costs would you choose? Explain. Mary expects inspectors to inspect 300 rooms and work for 105 hours next week. Using the cost driver you chose in requirement 2, what amount of inspection costs should Mary budget? Explain any implications of Mary choosing the cost driver you did not choose in requirement 2 to budget inspection costs.

Regression, activity-based costing, choosing cost drivers. Sleep Late, a large hotel chain, has been using activity-based costing to determine the cost of a night’s stay at their hotels. One of the activities, “Inspection,” occurs after a customer has checked out of a hotel room. Sleep Late inspects every 10th room and has been using “number of rooms inspected” as the cost driver for inspection costs. A significant component of inspection costs is the cost of the supplies used in each inspection. Mary Adams, the chief inspector, is wondering whether inspection labor-hours might be a better cost driver for inspection costs. Mary gathers information for weekly inspection costs, rooms inspected, and inspection labor-hours as follows: Week Room Inspected Inspection Labor-Hours Inspection Costs 1 254 66 $1,740 2 322 110 $2,500 3 335 82 $2,500 4 431 123 $2,800 5 198 48 $1,400 6 239 62 $1,690 7 252 108 $1,720 8 325 127 $2,200 Mary runs regressions on each of the possible cost drivers and estimates these cost functions: Inspection Costs=$193.19+($6.26×Number of rooms inspected) InspectionCosts=$944.66+($12.04×Inspectionlabor-hours) Question: Explain why rooms inspected and inspection labor-hours are plausible cost drivers of inspection costs. lot the data and regression line for rooms inspected and inspection costs. Plot the data and regression line for inspection labor-hours and inspection costs. Which cost driver of inspection costs would you choose? Explain. Mary expects inspectors to inspect 300 rooms and work for 105 hours next week. Using the cost driver you chose in requirement 2, what amount of inspection costs should Mary budget? Explain any implications of Mary choosing the cost driver you did not choose in requirement 2 to budget inspection costs.

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

Regression, activity-based costing, choosing cost drivers. Sleep Late, a large hotel chain, has been using activity-based costing to determine the cost of a night’s stay at their hotels. One of the activities, “Inspection,” occurs after a customer has checked out of a hotel room. Sleep Late inspects every 10th room and has been using “number of rooms inspected” as the cost driver for inspection costs. A significant component of inspection costs is the cost of the supplies used in each inspection.

Mary Adams, the chief inspector, is wondering whether inspection labor-hours might be a better cost driver for inspection costs. Mary gathers information for weekly inspection costs, rooms inspected, and inspection labor-hours as follows:

Week Room Inspected Inspection Labor-Hours Inspection Costs

1 254 66 $1,740

2 322 110 $2,500

3 335 82 $2,500

4 431 123 $2,800

5 198 48 $1,400

6 239 62 $1,690

7 252 108 $1,720

8 325 127 $2,200

Mary runs regressions on each of the possible cost drivers and estimates these cost functions:

Inspection Costs=$193.19+($6.26×Number of rooms inspected)

InspectionCosts=$944.66+($12.04×Inspectionlabor-hours)

Question:

Explain why rooms inspected and inspection labor-hours are plausible cost drivers of inspection costs.
lot the data and regression line for rooms inspected and inspection costs. Plot the data and regression line for inspection labor-hours and inspection costs. Which cost driver of inspection costs would you choose? Explain.
Mary expects inspectors to inspect 300 rooms and work for 105 hours next week. Using the cost driver you chose in requirement 2, what amount of inspection costs should Mary budget? Explain any implications of Mary choosing the cost driver you did not choose in requirement 2 to budget inspection costs.

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