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A.  Material Sampling -Analyzing Direct Material Costs

You are reviewing a cost proposal, which includes an $800,200 direct material estimate. After Initial examination of the proposal, you note that there are 500 material items, but you also note  that 20 high-cost items account for $620,000 of the total. The remaining $180,200 is spread across 480 relatively small purchases.

1. Examination of the 20 high-cost items (estimated at $620,000) shows that all are properly priced except one item. That item is overpriced by $20,000.  What must be your objective for these 20 items?

2. After analyzing the sample of the remaining 480 items, you find that the sample is overpriced by six percent. Using this six percent decrement factor, what cost must you compute for those items?  Remember that the average sample tern cost is 106 percent of what it ought to be.

3. Given your answers to problems 1 and 2, what should you estimate for total material cost? Mason Inventory- Analyzing Direct Material Costs. Given the following inventory data from Mason Corporation, what would be the inventory value Charged to job one (quantity of parts needed is 175) using FIFO, LIFO, and weighted average methods:
Receipt Date         Number of Units         Value             Extended Value
1/1/X I                       100                 $10.00             $1, 000
2/1/Xl                         50                 $11.00             $ 550
4/ 1/X1                       75                 $12.00             $ 900
6/1/X1                       150                 $13.00             $1, 950
9/1/X1                        75                 $14.00             $1,050
                                450                                      $5,450

1. What will be the inventory value charged using FIFO?

2. What wil be the inventory value charged using LIFO?

3. What will be the inventory value charged using weighted average?

You are preparing to negotiate with Far-Out Products for a contract to perform research and  development. For one work task, Far-Out is proposing 1800 labor hours and $80,000 of material. Both the technical analyst 2nd the auditor have examined the material cost. Both agree that there  is a relationship between labor hours and material cost. Both also agree in the accuracy of the  data below from recent similar projects (all data adjusted for inflation):

Project            Labor-Hours Expended         Material Dollars Expended

1                               1,000                            $ 50,000
2                               1,100                            $ 52,000
3                               1,900                            $ 74,000           
4                               2,000                            $ 73,500
5                               1900                             $ 74,400
Total                          7900                              323,900

1. Using the data, the auditor recommended a cost estimating relationship (CER) developed  using a simple average, $41 per labor hour ($323,900/7909). Using the auditor’s analysis,  what will you estimate of material cost for this task?

2. Using the same data, the technical analyst developed a CER using regression analysis.  The equation is $24,117 + ($25.74 x number of labor hours) with an R2 of .988. Using the analyst's analysis, is, what would be your estimate of material cost for the task?

3. Which estimate appears more accurate? Why?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M91434

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