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Goulburn, Incorporated produces parts for heavy equipment used in mining and construction. The plant that produces one part common to many vehicles is highly automated, so all labor is considered part of factory overhead. The plant manager, who has just been promoted, would like to understand how overhead costs fluctuate in order to improve planning and budgets. After discussions with both financial and operations members of the plant staff, there is general agreement that the best cost driver for overhead is machine-hours. Monthly data were collected from the most recent two years on machine-hours and overhead. More months of data were available, but a process change had taken place about 30 months earlier, so the staff believed any data from before that time would be misleading. The data are shown in the following table: Month 3 9 10 11 12 13 15 16 17 18 19 20 21 22 23 24 Machine-Hours 40,300 38,300 31,100 43,400 $1,600 46,500 43,400 63,100 37,300 54,700 53,700 37,300 60,900 59,900 46,500 40,300 56,800 51,400 61,900 50,600 54,700 30,100 60,900 59,900 Factory Overhead $ 528,100 417,500 366,800 499,200 591,700 504,400 477,900 719,900 426,300 662,000 617,700 491,500 694,000 655,700 581,000 528,900 684,400 614,700 670,500 620,100 673,100 446,000 693,400 719,500

Goulburn, Incorporated produces parts for heavy equipment used in mining and construction. The plant that produces one part common to many vehicles is highly automated, so all labor is considered part of factory overhead. The plant manager, who has just been promoted, would like to understand how overhead costs fluctuate in order to improve planning and budgets. After discussions with both financial and operations members of the plant staff, there is general agreement that the best cost driver for overhead is machine-hours. Monthly data were collected from the most recent two years on machine-hours and overhead. More months of data were available, but a process change had taken place about 30 months earlier, so the staff believed any data from before that time would be misleading. The data are shown in the following table: Month 3 9 10 11 12 13 15 16 17 18 19 20 21 22 23 24 Machine-Hours 40,300 38,300 31,100 43,400 $1,600 46,500 43,400 63,100 37,300 54,700 53,700 37,300 60,900 59,900 46,500 40,300 56,800 51,400 61,900 50,600 54,700 30,100 60,900 59,900 Factory Overhead $ 528,100 417,500 366,800 499,200 591,700 504,400 477,900 719,900 426,300 662,000 617,700 491,500 694,000 655,700 581,000 528,900 684,400 614,700 670,500 620,100 673,100 446,000 693,400 719,500

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter3: Cost Behavior
Section: Chapter Questions
Problem 35P: The management of Wheeler Company has decided to develop cost formulas for its major overhead...
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Goulburn, Incorporated produces parts for heavy equipment used in mining and construction. The plant that produces one part common to many vehicles is highly automated, so all labor is considered part of factory overhead. The plant manager, who has just been promoted, would like to understand how overhead costs fluctuate in order to improve planning and budgets. After discussions with both financial and operations members of the plant staff, there is general agreement that the best cost driver for overhead is machine-hours. Monthly data were collected from the most recent two years on machine-hours and overhead. More months of data were available, but a process change had taken place about 30 months earlier, so the staff believed any data from before that time would be misleading. The data are shown in the following table: Month 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Machine-Hours 40,300 38,300 31,100 43,400 51,600 46,500 43,400 63,100 37,300 54,700 53,700 37,300 60,900 59,900 46,500 40,300 56,800 51,600 61,900 50,600 54,700 30,100 60,900 59,900 Factory Overhead $ 528,100 417,500 366,800 499,200 591,700 504,400 477,900 719,900 426,300 662,000 617,700 491,500 694,000 655,700 581,000 528,900 684,400 614,700 670,500 620,100 673,100 446,000 493,400 719,500
Transcribed Image Text:Goulburn, Incorporated produces parts for heavy equipment used in mining and construction. The plant that produces one part common to many vehicles is highly automated, so all labor is considered part of factory overhead. The plant manager, who has just been promoted, would like to understand how overhead costs fluctuate in order to improve planning and budgets. After discussions with both financial and operations members of the plant staff, there is general agreement that the best cost driver for overhead is machine-hours. Monthly data were collected from the most recent two years on machine-hours and overhead. More months of data were available, but a process change had taken place about 30 months earlier, so the staff believed any data from before that time would be misleading. The data are shown in the following table: Month 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Machine-Hours 40,300 38,300 31,100 43,400 51,600 46,500 43,400 63,100 37,300 54,700 53,700 37,300 60,900 59,900 46,500 40,300 56,800 51,600 61,900 50,600 54,700 30,100 60,900 59,900 Factory Overhead $ 528,100 417,500 366,800 499,200 591,700 504,400 477,900 719,900 426,300 662,000 617,700 491,500 694,000 655,700 581,000 528,900 684,400 614,700 670,500 620,100 673,100 446,000 493,400 719,500
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