ANSWER ALL QUESTIONS IN EXCEL FORMAT AND SHOW WORKINGS
B D E F H 1 Waverley Welding Company provides welding services for a variety of industrial customers in the manufacturing, aerospace, and electronics industries. The number of jobs completed from one month to the next varies considerably, and jobs differ in terms of the complexity of the welding requirements. More complex jobs can take significantly longer to complete. Management knows that overhead costs have a fixed and a variable component but, until now, has not attempted to determine which measure of activity should be used for planning and forecasting. 1 The table below shows data for the most recent fiscal year. Management believes that either the number of jobs completed each month or the number of direct labour-hours incurred each month could be used as the activity base. However, they are not sure which is more appropriate. 2 Overhead includes costs such as the maintenance supervisor's salary, depreciation on the welding equipment, and indirect materials used on each job. Electricity costs are also included in overhead and are significant since welding equipment consumes a relatively high amount of energy. Waverley Welding also employs a mix of experienced and inexperienced welders. Experienced welders are paid a higher hourly wage but are more efficient and tend to incur less wastage of indirect materials. Inexperienced welders are of course paid less on a per hour basis but work more 3 slowly and use more indirect materials. Direct Labour Overhead 4 Month Jobs Hours Cost 5 January 4,839 $ 75,103 6 February 350 3,548 $ 69,491 7 March 400 3,990 $ 71,993 8 April 550 5,466 $ 81,217 9 May 200 1,914 $ 60,162 10 June 250 3,157 $ 68,364 11 July 500 5,000 $ 78,351 12 August 6,114 $ 81,582 13 September 500 5,108 $ 77,691 14 October 350 3,624 $ 68,355 15 November 400 3,900 $ 69,886 500 600 0 0 0 A22 X fx U G 10 A B D E F H 1 Direct Labour Overhead 4. Month Jobs Hours Cost 5 January 500 4,839 $ 75,103 6 February 350 3,548 $ 69,491 7 March 400 3,990 $ 71,993 8 April 550 5,466 $ 81,217 9 May 200 1,914 $ 60,162 June 250 3,157 $ 68,364 11 July 500 5,000 $ 78,351 12 August 600 6,114 $ 81,582 13 September 500 5,108 $ 77,691 14 October 350 3,624 $ 68,355 15 November 400 3,900 $ 69,886 16 December 510 5,700 $ 83,434 17 18 Required: 19 20 (a) Use Linear Regression to determine the cost formula for overhead cost assuming jobs produced is the activity base. Calculate the R-squared (Goodness of fit). 21 22 23 overhead cost = per job 24 R2= 25 26 + K + R? B C D E F G H 18 Required: 19 20 (a) Use Linear Regression to determine the cost formula for overhead cost assuming jobs produced is the activity base. Calculate the R-squared (Goodness of fit). 21 22 23 overhead cost = per job 24 25 26 27 (b) Use Linear Regression to determine the cost formula for overhead cost assuming direct labour hours 28 is the activity base. Calculate the R-squared (Goodness of fit). 29 30 overhead cost = per Direct Labour hour 31 R2= 32 33 (C) 34 Based on your answers in parts (a) and (b), which is the most appropriate cost driver for overhead costs? 35 + + Briefly explain why? 36 37 38
