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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
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 financlal 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 behavlor 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. Overhead Month Labor-Hours Costs 251,710 238,610 193,400 271,700 324,200 291,110 271,700 251,730 232,100 343,850 186,110 232,060 382,980 376,700 291,100 396,110 356,730 323,930 389,555 317,360 343,620 337,050 382,990 376,430 $2,742,020 2,375,630 2,400,550 2,590,930 3,072,220 2,618,570 2,480,640 2,745,960 2,821,750 3,438,110 2,336,740 2,551,080 3,604,120 3,405,190 3,016,900 3,638,740 3,554,300 3,192,020 3,482,120 3,219,920 3,495,830 3,207,660 3,601,030 3,637,050 1 2 3 4 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Required: a. Use the high-low estimation method to estimate the overhead cost behavior (fixed and varlable 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 440,000 labor-hours will be worked next month 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 financlal 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 behavlor 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. Overhead Month Labor-Hours Costs 251,710 238,610 193,400 271,700 324,200 291,110 271,700 251,730 232,100 343,850 186,110 232,060 382,980 376,700 291,100 396,110 356,730 323,930 389,555 317,360 343,620 337,050 382,990 376,430 $2,742,020 2,375,630 2,400,550 2,590,930 3,072,220 2,618,570 2,480,640 2,745,960 2,821,750 3,438,110 2,336,740 2,551,080 3,604,120 3,405,190 3,016,900 3,638,740 3,554,300 3,192,020 3,482,120 3,219,920 3,495,830 3,207,660 3,601,030 3,637,050 1 2 3 4 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Required: a. Use the high-low estimation method to estimate the overhead cost behavior (fixed and varlable 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 440,000 labor-hours will be worked next month
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