An Organisation's Accountant Is Estimating Next Period's Total Overhead Costs

question 31

Multiple Choice

An organisation's accountant is estimating next period's total overhead costs. She performed two regression analyses, one based on direct labour hours and the other based upon machine hours. The results were: Total overhead = $150,000 + $4 x direct labour hours
Adjusted R-square = 0.83
Total overhead = $130,000 + $5 x machine hours
Adjusted R-square = 0.77
For the next period the accountant anticipates using 28,000 direct labour hours and 26,000 machine hours. Based upon this information, what is the best estimate for overhead for the next period?

• A) $262,000
• B) $260,000
• C) $254,000
• D) $270,000

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Definitions:

Scarce Resources

Resources such as manpower, materials, and capital, which are limited in availability and essential for production processes.

Bowed Outward

A characteristic of the production possibilities frontier that reflects the increasing opportunity cost of producing one good as more of it is produced, which results in the curve being concave from the origin.

Economy's Resources

The total assets available for production, including land, labor, capital, and entrepreneurship, within a given economy.

Unemployment

The situation when individuals who are able and willing to work cannot find employment, often measured as a percentage of the labor force.