37. (Activity driver analysis and decision making) High Plains Manufacturing Products is concerned about its ability to control factory labor-related costs. The company has recently finished an analysis of these costs for 2001. Following is a summary of the major categories of labor costs identified by High Plain’s accounting department:

Category Amount Base wages $42,000,000 Health care benefits 7,000,000 Payroll taxes 3,360,000 Overtime 5,800,000 Training 1,250,000 Retirement benefits 4,600,000 Workers’ compensation 800,000 Listed below are some of the potential cost drivers identified by the company for labor-related costs, along with their 2001 volume levels.

Potential Activity Driver 2001 Volume Level Average number of factory employees 1,400 Number of new hires 200 Number of regular labor hours worked 2,100,000 Number of overtime hours worked 192,000 Total factory wages $47,800,000 Volume of production in units 8,000,000 Number of production process changes 400 Number of production schedule changes 250

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 part (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 are asking their employees to work record levels of overtime. What activity driver does this practice suggest is a major contributor to labor-related costs? Explain.