Usingthedatamrladouceurmaynotcoverhisfixedcostsevenifh

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern