Question 1
June Lockett, controller, gathered data on overhead costs and direct labor-hours over the past 12 months. List and discuss the different approaches June can use to estimate a cost function for overhead costs using direct labor-hours as the cost driver.
Question 2
The cost of the personnel department at the Speedy Process Company has always been charged to the production departments based upon number of employees. Recently, opinions gathered from the department managers indicated that the number of new hires might also be a predictor of personnel costs to be assigned. Total personnel department costs are $200.000.
| Department | Department | Department |
| Number of employees | 390 | 325 | 65 |
| The number of new hires | 30 | 40 | 25 |
Required:
Using the above data, prepare a report that contrasts the different amounts of personnel department cost that would be allocated to each of the production departments if the cost driver used is:
| b. | the number of new hires. |
| c. | Which cost estimation method is being used by Speedy Company? |
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