Management at Glover & Lamb Inc. is concerned about controlling factory labor-related costs. The following summary is the result of an analysis of the major categories of labor costs for 2010:
Category Amount
Base wages ............. $63,000,000
Health-care benefits ............ 10,500,000
Payroll taxes ............ 5,018,832
Overtime ............... 8,697,600
Training .............. 1,875,000
Retirement benefits ........... 6,898,500
Workers’ compensation ........ 1,199,940
Following are some of the potential cost drivers identified by the company for labor-related costs, along with their 2010 volume levels:
Potential Activity Driver 2010 Volume Level
Average number of factory employees ............ 2,100
Number of new hires ................... 300
Number of regular labor hours worked ......... 3,150,000
Number of overtime hours worked ........... 288,000
Total factory wages paid ................ $71,697,600
Volume of production in units .............. 12,000,000
Number of production process changes .......... 600
Number of production schedule changes ........... 375
a. For each cost pool, determine the cost per unit of the activity driver using the activity driver that you believe has the closest relationship to the cost pool.
b. Based on your judgments and calculations in (a), which activity driver should receive the most attention from company managers in their efforts to control labor-related costs? How much of the total labor-related cost is attributable to this activity driver?
c. In the contemporary environment, many firms ask their employees to work record levels of overtime. What activity driver does this practice suggest is a major contributor to labor-related costs? Explain.