Cost Analysis and Overhead Rate Calculation for Wix Candles

This assignment analyzes the cost structure of the Wix Candle Company, focusing on the classification of costs into direct materials, direct labor, and overhead. It calculates the total direct material, direct labor, and overhead costs. The assignment also classifies costs into fixed, variable, and mixed components using R-square analysis and develops cost equations for total production costs and manufacturing overhead. The analysis includes calculations for predetermined overhead rates and per-unit costs for various candle types. Additionally, it addresses concerns regarding accounting practices and their impact on per-unit costs, as well as providing recommendations for improving cost allocation methods. The solution also covers additional analysis and provides insights into the impact of labor hours on overall costs, offering detailed calculations and explanations throughout.

Classification of costs into Direct Material, Direct Labour and Overheads:
Answer to Question 2:
a. The total direct material cost for the company for the last year has been calculated as
$39,93,750.
b. The total direct labour cost for the company is $4,01,250.
c. The total overhead for the company is $12,00,000.
d. The relationship between my calculations and account numbers are in sync. The direct
labour cost matches exactly with the cost mentioned under general ledger report and
the overhead is $12,00,000 matches with the Activity Based Costing sheet. This
indicates that the balance amount for direct material is also correct.
Classification of costs into Fixed, Variable and Mixed:
Answer to Question 3:
a. Based on the R-square analysis, Utilities stands out as the best outcome against DL
as it has the highest co-efficient of 1.61.
b. Based on the R-square analysis, parts and repairs stands out as the worst outcome
against DL as it has the lowest co-efficient of 0.19.
c. The total fixed component of the individual expense heads is $2,34,178,77 and the
total variable cost is $128.50 for each labour hours.
a. The total cost equation for Total Production cost
= $128.50 * DL + $9,22,678.77
b. The total cost equation for Manufacturing Overhead
= $7.26 * DL + $9,22,678.77
d. The total amount that the company will spend is they use 45,000 DL is as below:
a. The total cost equation for Total Production cost
= $128.50 * DL + $9,22,678.77
= $128.50 * 45,000 + $9,22,678.77
= $6,705,178.77
b. The total cost equation for Manufacturing Overhead
= $7.26 * DL + $9,22,678.77
= $7.26 * 45,000 + $9,22,678.77
= $1,249,378.77

Additional Analysis
Answer to Question 1:
My concern to Jessica’s response is the inappropriate accounting of the expenses leading to
erroneous per unit figure and ultimately getting a erroneous per unit cost of the product.
Answer to Question 2:
The consequence of reporting this inappropriately is erroneous per unit cost of the product
which could lead to faulty pricing and thus varied profits for the company.
Answer to Question 3:
Andres can record the miscellaneous expense under a separate head and then allocate it to the
production based on some other measure than DL and thus arrive at a reasonable cost
estimate for the product.
Speciality Candles: Predetermined Overhead rate:
a. The predetermined overhead rate for can be determined as below:
Department Driver Usage Total Overhead Pre-determined Rate
Pouring Direct Labour Hours 25,000 $ 4,00,000 $ 16.00
Finishing Batches 125000 $ 8,00,000 $ 6.40
b. The per unit cost of order No. 61375 has been calculated at $5.25.
c. The per unit cost of same number of additive candle has been calculated at $7.25.
d. The per unit cost of same number of imprint candle has been calculated at $6.99.