MGAB03H3 Chapter Notes - Chapter 2: Direct Labor Cost, Cost Driver
14 Aug 2015
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Chapter 2: integrating across the curriculum: statistics cost function using multiple regression, cost inflation, lagged cost driver red"s furniture manufacturing produces a line of tables and chairs from specialty hardwoods. It makes three different styles of chairs, and each chair takes about the same amount of direct labor time to manufacture. Shawn hargrove was the company"s new cost accountant and was preparing a direct labor cost budget for 20x5. The previous cost accountant had always estimated direct labor costs based on a regression of the cost against the number of chairs produced using monthly data from the prior four years. This approach seemed to be economically plausible, so shawn began his cost estimate by following the method used in prior years. However, shawn was not pleased with his regression results. Shawn thought about ways to improve the cost function estimate. He realized that the past cost information did not take into account pay raises.
