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Case 1-4 First Plumbing Company provides commercial plumbing services for a variety of industrial customers. Management knows that overhead costs have a fixed and a
Case 1-4 First Plumbing Company provides commercial plumbing services for a variety of industrial customers. Management knows that overhead costs have a fixed and a variable component but, until now, has not attempted to determine what measure of activity should be used for planning and forecasting. The table below shows data for the most recent fiscal year with monthly overhead costs and direct labour hours. Month January February March April May June July August September October November December Direct Total Labour Costs Hours 29,100 2,200 25,600 2,600 29,200 3,500 25,600 3,300 26,200 2,500 29,500 3,200 28,600 3,000 28,000 2,900 27,400 2,700 30,400 3,800 31,800 3,100 29,400 3,600 Overhead includes costs such as the supervisor's salary, equipment depreciation and indirect materials used on each job, etc. Transportation costs are also included in the overhead and are significant since their plumber employees travel to customers' location to perform service every day. First Plumbing also employs a mix of master plumbers and plumbing apprentices. Master plumbers are paid a higher hourly wage but are more efficient and tend to incur less wastage of indirect materials. Plumbing apprentices are paid less hourly wages, work more slowly and use more indirect materials. Required: 1. Use the High-Low Method to estimate the variable rate and overhead costs. 2. Use the Simple Regression Method by spreadsheet to estimate the variable rate and overhead costs. 3. Create a Regression Chart with the provided DLH and total costs. 4. Explain the advantage and disadvantage of using the high-low method to determine the costs, and which method you would recommend using. 5. Explain what Goodness-of-Fit in the Simple Regression method is
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