Unformatted text preview: gh contribution to cover fixed costs and earn a reasonable profit, and (c) a judgment of how representative past historical data (used in the regression analysis) is about future costs. Using the data Mr. Ladouceur may not cover his fixed costs even if he can obtain the job. He is better off to use his own estimate of costs based on his own data. There must be another cost driver that better specifies how overhead costs change systematically. The intercept value of a is not a fixed cost. It is the estimated dollar value of cost change that is not explained by a change in labour hours. 5. 6. Mr. Ladouceur is making a mistake when he assumes that the value of a is a fixed cost. The MOH cost pool is heterogeneous. Some of the costs are fixed but some are variable. Of the variable costs not all are driven by labour hours, although Mr. Ladouceur has chosen this as his cost driver. Mr. Ladouceur only has 12 data points and the minimum he should have to derive a reliable systematic relationship is 31 data points....
View Full Document
- Winter '12
- overhead costs, Mr. Ladouceur