1. Watson Industries is in the process of analyzing its manufacturing overhead costs. Management is not sure if the number of units produced or the number of direct labor (DL) hours is the best cost driver to use for predicting manufacturing overhead (MOH) costs. The following information is available:

The table shows the following data with cost in dollars:

July

Manufacturing Overhead costs: 485,000

Direct labor hours: 25,000

Units produced: 3,800

MOH cost per DL hour: 19.40

MOH cost per Unit produced: 127.63

August

Manufacturing Overhead costs: 540,000

Direct labor hours: 26,700

Units produced: 4,360

MOH cost per DL hour: 20.22

MOH cost per Unit produced: 123.85

September

Manufacturing Overhead costs: 420,000

Direct labor hours: 20,000

Units produced: 4,210

MOH cost per DL hour: 21.00

MOH cost per Unit produced: 99.76

October

Manufacturing Overhead costs: 462,000

Direct labor hours: 21,900

Units produced: 3,450

MOH cost per DL hour: 21.10

MOH cost per Unit produced: 133.91

November

Manufacturing Overhead costs: 579,000

Direct labor hours: 32,000

Units produced: 5,600

MOH cost per DL hour: 18.09

MOH cost per Unit produced: 103.39

December

Manufacturing Overhead costs: 455,000

Direct labor hours: 20,400

Units produced: 3,270

MOH cost per DL hour: 22.30

MOH cost per Unit produced: 139.14

1. Requirements
2. 1. Are manufacturing overhead costs fixed, Maria

• 2. Graph the company's manufacturing overhead costs against DL hours.
• 3. Graph the company's manufacturing overhead costs against units produced.
• 4. Do the data appear to be sound, or do you see any potential data problems? Explain.
• 5. Use the high-low method to determine the company's manufacturing overhead cost equation using DL hours as the cost driver. Assume that management believes all the data to be accurate and wants to include all of it in the analysis.
• 6. Estimate manufacturing overhead costs if the company incurs 26,000 DL hours in January.