CAN THIS AICPA RELEASE QUESTION BE WRONG??

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  • #2925345
    Mujahid_ Abu Dahda
    Participant

    I was going thru this AICPA Release question on BEC and I was wondering why choice B is the best answer.
    Roger Co. implemented activity-based costing in the current year. To select the appropriate driver for Cost Pool A, Roger performed regression analyses for two independent variables, Driver 1 and Driver 2, using monthly operating data. The monthly levels of Cost Pool A were the dependent variables in both regressions. Output results from the regression analyses were as follows:

    Driver 1 Driver 2
    R squared 0.46 0.80
    Intercept $551.00 $970.00
    X variable (slope) $ 0.55 $ 0.33

    At the budgeted production level for next month, the levels of Driver 1 and Driver 2 are expected to be 5,880 and 7,000, respectively. Based on this information, what is the budgeted amount for Cost Pool A for next month?
    A. $2,624 B. $3,280 C. $3,464 D. $3,785

    My suggested solution is this:
    Cost pool A for Driver 1 = $551 +$0.55(5800) = $3,785
    Cost pool A for Driver 2 = $970 + $0.33(7000) =$3,280
    Budgeted amount for Cost pool A is $3,785 + $3,280 = $7,065

    Unfortunately, my answer is not among the options above. Any help on why ‘B'is the best answer???

    #2925354
    CPAHOPE
    Participant

    You already computed the answer 3280 for driver 2. You only choose driver 2 as the answer because R squared is larger than driver 1. As R squared becomes larger as percentage, it better reflects the variation of changes of Y variable based on changes of x variable.

    AUD - 39
    BEC - 71
    FAR - 57
    REG - 79

    FAR 57,61,57(why?)

    REG 54,49,69,66, 79

    AUD 39(lol)

    BEC 64,60,50(lol),70,67,71

    #2926773
    Mujahid_ Abu Dahda
    Participant

    Thank you @ CPAHOPE!!

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