Rush Company Is Trying to Find an Appropriate Allocation Base

question 48

Essay

Rush Company is trying to find an appropriate allocation base for factory overhead. Presented are five months of data: $$\begin{array} { l c c c } \text { Month } & \text { Direct labour Hours } & \text { Machine Hours } & \text { Factory Overhead } \\\text { January } & 10 & 3 & £ 45 \\\text { February } & 20 & 5 & 75 \\\text { March } & 15 & 4 & 70 \\\text { Apri1 } & 30 & 5 & 130 \\\text { May } & 25 & 3 & 80\end{array}$$ r = $$\frac { \sum ( X - X ) ( Y - Y ) } { \left( \sum ( X - X ) ^ { 2 } \sum ( Y - Y ) ^ { 2 } \right) ^ { 5 } }$$
a.Calculate the correlation coefficient between factory overhead and direct labour hours.
b.Calculate the correlation coefficient between factory overhead and machine hours.
c.Should Rush Company use direct labour hours or machine hours for their allocation base for factory overhead? Why?

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