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Recently Ryan Smith, the plant manager of the manufacturing division of Waterways Corporation, has been focusing on changes to overhead costs. He realizes that Ben Clarks new designs call for more automation in the plant, but he is also investigating if there are any opportunities for cost savings. Ryan thought it might be helpful to his cost-cutting measures if he could predict what manufacturing overhead would be in the following months. But first he needed to determine the appropriate activity base. He thought there could be two possibilities: direct labour or the number of hours of operation. From historical data, he retrieved the following information:

		Direct Labour		Hours of Operation		Manufacturing Overhead
January		$36,500		560		$156,000
February		35,500		580		185,375
March		41,500		760		181,000
April		43,500		750		211,375
May		38,500		635		186,625
June		36,500		610		177,125

Ryan then asked CFO Jordan Leigh for information available to determine the cost of goods manufactured. Ryan was provided with the following information.

1.		The balances in the applicable inventory accounts at the beginning of the month were: Raw materials inventory $38,000; Work in process inventory $54,000.
2.		Raw material purchases for the month were $192,000.
3.		Of the raw materials used in production, 80% could be traced to the actual production, and the rest was indirect materials.
4.		Ending raw materials inventory was $40,000.
5.		Actual costs for wages and salaries were $72,000, of which 50% was considered overhead; the balance was direct labour.
6.		Hours of operation for the month were 520.
7.		Total manufacturing costs for the month were $340,000.
8.		Costs transferred into finished goods inventory for the month were $330,000.

Using the high-low method, and based on the historical data provided, determine two possible cost formulas for manufacturing overhead. (Round answers to 2 decimal places, e.g. 2.75 wherever necessary.)

		Cost Formula
Based on direct labour		$enter a dollar amount	+	enter a dollar amount rounded to 2 decimal places X
Based on hours of operation		$enter a dollar amount	+	$enter a dollar amount X

Using the cost formulas developed in the previous part, determine the manufacturing overhead and actual manufacturing overhead for the month.

		Manufacturing overhead
Based on direct labour		$enter a dollar amount
Based on hours of operation		$enter a dollar amount
Actual		$enter a dollar amount

Determine which activity base would be better for predicting manufacturing overhead.

select an option Hours of operationDirect labour would be better choice as an activity base for predicting manufacturing overhead.

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