Problem - Plant ABC manufactures electrical components & has experienced difficulties with fluctuating monthly overhead costs. Determine the cost behavior pattern of the historical data overhead cost. The raw data are as follows:
|
2010
|
2011
|
|
Month
|
Direct LH
|
Overhead Costs
|
Direct LH
|
Overhead Costs
|
|
January
|
30,000
|
$94,000
|
31,000
|
$96,000
|
|
February
|
35,000
|
109,000
|
34,000
|
103,000
|
|
March
|
32,000
|
99,500
|
33,000
|
103,000
|
|
April
|
33,000
|
100,000
|
32,000
|
97,000
|
|
May
|
30,000
|
91,500
|
30,000
|
90,000
|
|
June
|
29,000
|
85,500
|
28,000
|
86,500
|
|
July
|
24,000
|
80,500
|
22,000
|
77,500
|
|
August
|
20,000
|
74,500
|
23,000
|
81,000
|
|
September
|
22,000
|
79,000
|
25,000
|
83,500
|
|
October
|
27,000
|
85,000
|
27,000
|
82,500
|
|
November
|
26,000
|
81,500
|
25,000
|
81,000
|
|
December
|
29,000
|
88,000
|
28,000
|
85,000
|
Required -
a. Using the high-low method, determine the cost formula for overhead costs (use ALL of the data, i.e., ignore the years and combine the data).
b. Repeat (a.) above using regression analysis.
c. Prepare a graph, including ALL data for the two-year period. Fit a regression line to the plotted points. (DO NOT compute variable and fixed cost elements from your regression line.)
d. Assume that Plant ABC works 32,500 direct labor-hours during a month. Compute the expected overhead cost for the month, using the cost formulas developed above.