Carmichael Industries is in the process of analyzing its manufacturing overhead costs. Carmichael Industries is not sure if the number of units produced or the number of direct labor (DL) hours is the best cost driver to be used for predicting manufacturing overhead (MOH) costs. The following information is available:
Here is the list of tasks that you need to do in this assessment:
1. Are manufacturing overhead costs fixed, variable, or mixed? Explain.
2. Graph Carmichael Industries' manufacturing overhead costs against direct labor hours.
3. Graph Carmichael Industries' manufacturing overhead costs against units produced.
4. Does the data appear to be sound, or do you see any potential data problems? Explain.
5. Use the high-low method to determine Carmichael Industries' manufacturing overhead cost equation using direct labor hours as the cost driver. Assume that management believes that all the data is accurate and wants to include all of it in the analysis.
6. Estimate manufacturing overhead costs if Carmichael Industries incurs 25,500 direct labor hours in January.
|
Month
|
Manufacturing Overhead Costs
|
Direct Labor Hours
|
Units Produced
|
MOH Cost per DCL Hour
|
MOH Cost per Unit Produced
|
|
July
|
$463,000
|
23,100
|
3,620
|
$20.04
|
$127.90
|
|
August
|
513,000
|
26,500
|
4,300
|
19.36
|
119.30
|
|
September
|
435,000
|
20,000
|
4,230
|
21.75
|
102.84
|
|
October
|
450,000
|
21,400
|
3,380
|
21.03
|
133.14
|
|
November
|
562,000
|
30,000
|
5,790
|
18.73
|
97.06
|
|
December
|
438,000
|
20,500
|
3,300
|
21.37
|
132.73
|