Question

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		251,550		$	2,741,220
2		238,450			2,375,230
3		192,600			2,400,150
4		271,300			2,590,770
5		323,800			3,071,820
6		290,950			2,618,170
7		271,300			2,480,240
8		251,570			2,745,560
9		231,900			2,821,350
10		343,450			3,437,710
11		185,950			2,294,340
12		231,900			2,550,680
13		382,820			3,603,720
14		376,300			3,404,790
15		290,940			3,016,500
16		395,950			3,638,340
17		356,570			3,553,900
18		323,770			3,191,620
19		389,395			3,481,720
20		317,200			3,219,520
21		343,460			3,495,430
22		336,890			3,207,260
23		382,830			3,600,630
24		376,270			3,636,650

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 to 2 decimal places.)

​Overhead Costs= ____________ + $___________ per LH X Labor hours

c. Using Excel, compute regression coefficients to describe the overhead cost equation. (Round your answers to 2 decimal places.)

   ​Coefficients

​Intercept (Fixed Costs)= ____________

Cost per Labor Hour= _______________

d. Use the results of your regression analysis to develop an estimate of overhead costs assuming 360,000 labor-hours will be worked next month. (Round Cost per Labor hour to 2 decimal places.)

​Overhead Cost= _____________

Answer 1