Question

In: Accounting

Hartman Company's Lucas plant manufactures thermostatic controls. Plant management has experienced fluctuating monthly overhead costs and...

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 financial 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 behavior 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:


Month Labor-Hours Overhead Costs
1       251,570 $ 2,741,320
2       238,470 2,375,280
3       192,700 2,400,200
4       271,350 2,590,790
5       323,850 3,071,870
6       290,970 2,618,220
7       271,350 2,480,290
8       251,590 2,745,610
9       231,925 2,821,400
10       343,500 3,437,760
11       185,970 2,273,390
12       231,920 2,550,730
13       382,840 3,603,770
14       376,350 3,404,840
15       290,960 3,016,550
16       395,970 3,638,390
17       356,590 3,553,950
18       323,790 3,191,670
19       389,415 3,481,770
20       317,220 3,219,570
21       343,480 3,495,480
22       336,910 3,207,310
23       382,850 3,600,680
24       376,290 3,636,700


Required:
(a)

Use the high-low estimation method to estimate the overhead cost behavior (fixed and variable portions components of cost) for the Lucas plant. (Round variable cost per unit answer to five decimal places. Use this value in subsequent computations. Round fixed costs to whole dollar value.)



(c)

Use a spreadsheet program to compute regression coefficients to describe the overhead cost equation. (Round your answers to 2 decimal places.)



(d)

Use the results of your regression analysis to develop an estimate of overhead costs assuming 370,000.00 labor-hours will be worked next month. (Round fixed costs to whole dollar value, labor hours to two decimal places for intermediate computations. Round your final answer to nearest whole dollar value.)

Solutions

Expert Solution


Related Solutions

Hartman Company's Lucas plant manufactures thermostatic controls. Plant management has experienced fluctuating monthly overhead costs and...
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 financial 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...
Hartman Company's Lucas plant manufactures thermostatic controls. Plant management has experienced fluctuating monthly overhead costs and...
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 financial 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...
Hartman Company's Lucas plant manufactures thermostatic controls. Plant management has experienced fluctuating monthly overhead costs and...
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 financial 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...
X Company's accountant developed a cost fuction to predict monthly overhead costs, with units produced as...
X Company's accountant developed a cost fuction to predict monthly overhead costs, with units produced as the single independent variable.She analyzed the following total overhead costs in March to develop the parameters of the cost function: Supplies $29,100 Utilities 22,800 Maintenance 18,900 Insurance 12,400 The accountant classified these costs as follows: supplies were all variable; insurance was all fixed; variable utility costs were $15,960; fixed maintenance costs were $1,890. March production was 1,000 units; June production is expected to be...
X Company's accountant developed a cost fuction to predict monthly overhead costs, with units produced as...
X Company's accountant developed a cost fuction to predict monthly overhead costs, with units produced as the single independent variable. She analyzed the following total overhead costs in March to develop the parameters of the cost function: Supplies $29,100 Utilities 18,900 Maintenance 19,200 Insurance 10,700 The accountant classified these costs as follows: supplies were all variable; insurance was all fixed; variable utility costs were $15,120; fixed maintenance costs were $3,840. March production was 900 units; June production is expected to...
Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead....
Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities                                         Cost driver             Allocation Rate Material handling                    Number of parts                    $2 per part Assembly                                       Labor hours                 $20 per hour Inspection                   Time at inspection station               $3 per minute The current traditional cost method allocates overhead based on direct manufacturing labor hours using a...
1. Khorab Ltd manufactures chocolate candy. The company's management accounts are drawn up on a monthly...
1. Khorab Ltd manufactures chocolate candy. The company's management accounts are drawn up on a monthly basis as per the financial manager's (FM) recommendation. Ms Nghitewa, who is the company;s FM provided the following information in respect of January 2019: $ Purchases(direct and indirect material) 460 000 Office salaries 45 000 freight on sale 1 2 000 Rent 30 000 Freight on purchases 8 000 Property rates and taxes 55 000 Insurance 20 000 Depreciation 55 000 Balances on 1...
Spark Electrical Company manufactures electrical components. The plant manager ā€“ Mr. Uptight, has experienced difficulties with...
Spark Electrical Company manufactures electrical components. The plant manager ā€“ Mr. Uptight, has experienced difficulties with fluctuating monthly overhead costs. Mr. Uptight wants to be able to estimate overhead costs to plan its operations and financial needs. A trade association publication reports that for companies manufacturing electrical components, overhead tends to vary with machine hours. Monthly data was gathered on machine hours and overhead costs for the past two years. There were no major changes in operations over this period...
XYZ Company has experienced increased production costs. The primary area of concern identified by management is...
XYZ Company has experienced increased production costs. The primary area of concern identified by management is direct labor. The company is considering adopting a standard cost system to help control labor and other costs. Useful historical data are not available because detailed production records have not been maintained. To establish labor standards, XYZ Company has retained an engineering consulting firm. After a complete study of the work process, the consultants recommended a labor standard of one unit of production every...
Blook Company manufactures organic cosmetics and has summarized the following monthly costs observed at various activity...
Blook Company manufactures organic cosmetics and has summarized the following monthly costs observed at various activity levels over their first year of operations. Considering your knowledge of variable costs and fixed costs within the relevant range determined the following requirements below. Activity level Rent Expense Direct Materials 3,000 20,000 20,000 6,000 20,000 36,000 9,000 32,000 45,000 12,000 32,000 60,000 15,000 32,000 75,000 18,000 32,000 90,000 21,000 32,000 105,000 24,000 32,000 120,000 27,000 40,000 146,500    30,000 40,000 175,000 33,000 40,000...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT