Analyze cost behavior (Learning Objectives 1, 2, 3, 4)

Berg Industries is in the process of analyzing its manufacturing overhead costs. Berg Industries is not sure if the number of units produced or number of direct labor

(DL) hours is the best cost driver to use for predicting manufacturing overhead (MOH) costs. The following information is available:

1. Are manufacturing overhead costs fixed, variable, or mixed? Explain.
2. Graph Berg Industries’ manufacturing overhead costs against DL hours. Use Excel or graph by hand.
3. Graph Berg Industries’ manufacturing overhead costs against units produced.
Use Excel or graph by hand.
4. Do the data appear to be sound, or do you see any potential data problems? Explain.
5. Use the high-low method to determine Berg Industries’ manufacturing overhead cost equation using DL hours as the cost driver. Assume that management believes that all data is accurate and wants to include all of it in the analysis.
6. Estimate manufacturing overhead costs if Berg Industries incurs 24,000 DL hours in January.

Transcribed Image Text:

MOH Cost MOH Manufacturing Direct per Cost Overhead Labor Units DL per Unit Month Costs Hours Produced Hour Produced July $460,475 23,000 3,600 $20.02 $127.91 August 515,280 26,400 4,320 19.52 119.28 September 419,010 18,800 4,200 22.29 99.76 October 447,970 21,600 3,400 20.74 131.76 November 543,470 28,600 5,750 19.00 94.52 December 437,020 19,400 3,250 22.53 134.47