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	$25,000	500	$145,000
February	24,000	520	148,000
March	30,000	700	170,000
April	32,000	690	176,000
May	27,000	575	150,000
June	25,000	550	140,000

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 $35,000; Work in process inventory $52,000.
• 2.Raw material purchases for the month were $191,000.
• 3.Of the raw materials used in production, 75% could be traced to the actual production, and the rest was indirect materials.
• 4.Ending raw materials inventory was $50,000.
• 5.Actual costs for wages and salaries were $70,000, of which 60% was considered overhead; the balance was direct labour.
• 6.Hours of operation for the month were 600.
• 7.Total manufacturing costs for the month were $315,000.
• 8.Costs transferred into finished goods inventory for the month were $325,000.

Questions:

1. ). a.

Using the high-low method, and based on the historical data provided, determine two possible cost formulas for manufacturing overhead.

b.

Using the cost formulas developed in part (a), determine which activity base would be better for predicting manufacturing overhead.

2.)

Prepare a condensed cost of goods manufactured schedule.