1. Hartman Company's Lucas plant manufactures thermostatic controls. Plant management has experienced fluctuating monthly overhead costs and wants to estimate overhead costs accurately to plan its operations and its financial needs. Interviews with plant personnel and studies reported in trade publications suggest that overhead in this industry tends to vary with labor-hours.

A member of the controller's staff proposed that the behavior pattern of these overhead costs be determined to improve cost estimation. Another staff member suggested that a good starting place for determining cost behavior patterns is to analyze historical data. Following this suggestion, monthly data were gathered on labor-hours and overhead costs for the past two years. No major changes in operations occurred over this period of time. The data are shown in the following table.

Month	Labor-Hours			Overhead Costs
1		251,670		$	2,741,820
2		238,570			2,375,530
3		193,200			2,400,450
4		271,600			2,590,890
5		324,100			3,072,120
6		291,070			2,618,470
7		271,600			2,480,540
8		251,690			2,745,860
9		232,050			2,821,650
10		343,750			3,438,010
11		186,070			2,378,640
12		232,020			2,550,980
13		382,940			3,604,020
14		376,600			3,405,090
15		291,060			3,016,800
16		396,070			3,638,640
17		356,690			3,554,200
18		323,890			3,191,920
19		389,515			3,482,020
20		317,320			3,219,820
21		343,580			3,495,730
22		337,010			3,207,560
23		382,950			3,600,930
24		376,390			3,636,950

Required:

a. Use the high-low estimation method to estimate the overhead cost behavior (fixed and variable portions components of cost) for the Lucas plant.

c. Using Excel, compute regression coefficients to describe the overhead cost equation.

d. Use the results of your regression analysis to develop an estimate of overhead costs assuming 420,000 labor-hours will be worked next month.

2. Odd Wallow Drinks is considering adding a new line of fruit juices to its merchandise products. This line of juices has the following prices and costs.

Selling price per case (24 bottles) of juice	$	75
Variable cost per case (24 bottles) of juice	$	36
Fixed costs per year associated with this product	$	12,168,000
Income tax rate		40	%

Required:

a. How many cases must Odd Wallow Drinks sell to earn $1,872,000 per year after taxes on the juice?