Catanach Incorporated assigns factory overhead by a predetermined rate on the basis of direct labor hours. Factory overhead costs for two recent years, adjusted for changes using current prices and wage rates, are as follows:

Required:
(1) The company expects to operate at a level of activity of 2,300,000 direct labor hours next year. Using the data from the two recent years, calculate the estimated total factory overhead for next year.
(2) Explain how the company can use the computed cost behavior information for:
(a) Evaluation of product pricing decisions
(b) Cost control evaluation
(c) Developmental of budgets

Transcribed Image Text:

Year 1 Year 2 worked 27600002,160,000 Factory overhead costs: Indirect labor $11,040,000 $8,640,000 3,240,000 2,160,000 1,728,000 552,000 2,625,000 7,930,000 3,005,000 $34,500,000 $29,880,000 Employee benefits Supplies. Heat and light. 4,140,000 2,760,000 2,208,000 552,000 2,865,000 7,930,000 3,005,000 Property taxes and insurance. Total factory overhead cost.