Recently Ryan Smith, the plant manager of the manufacturing division of Waterways Corporation, has been focusing on changes to overhead costs. He realizes that Ben Clark's new designs call for more automation in the plant, but he is also investigating if there are any opportunities for cost savings. Ryan thought it might be helpful to his cost-cutting measures if he could predict what manufacturing overhead would be in the following months. But first he needed to determine the appropriate activity base. He thought there could be two possibilities: direct labour or the number of hours of operation. From historical data, he retrieved the following information: Direct Labour Hours of Operation Manufacturing Overhead January $21,000 400 $142,000 February 20,000 420 138,000 March 26,000 600 159,000 April 28,000 590 167,200 May 23,000 475 140,450 June 21,000 450 130,150 Ryan then asked CFO Jordan Leigh for information available to determine the cost of goods manufactured. Ryan was provided with the following information. Ryan then asked CFO Jordan Leigh for information available to determine the cost of goods manufactured. Ryan was provided with the following information. 1. The balances in the applicable inventory accounts at the beginning of the month were: Raw materials inventory $38,000; Work in process inventory $63,000. Raw material purchases for the month were $182,000. 2. 3. 4. 5. Of the raw materials used in production, 75% could be traced to the actual production, and the rest was indirect materials. Ending raw materials inventory was $56,000. Actual costs for wages and salaries were $90,000, of which 50% was considered overhead; the balance was direct labour. Hours of operation for the month were 600. Total manufacturing costs for the month were $330,000. 6. 7. 8. Costs transferred into finished goods inventory for the month were $370,000. Using the cost formulas developed in the previous part, determine the manufacturing overhead and actual manufacturing overhead for the month. Manufacturing overhead Based on direct labour $ Based on hours of operation A $ Actual $ Determine which activity base would be better for predicting manufacturing overhead. would be better choice as an activity base for predicting manufacturing overhead