Question

prepare a scattergraph

Case 2A-12 Requirements (these are different from the textbook) Prepare a rough scattergraph plot on note paper that puts labor-hours on the X-axis and overhead expenses on the Y-axis. This is for your review only. Do Not Include in Your Post. 1. What insights and trends are revealed by your scattergraph in this case? Be specific.

Answer 1

Labor Hours 2,500 2,800 3,000 4,200 4,500 5,500 6,500 7,500 7,000 4,500 3,100 6,500 57,600 Overhead Expense 55,000 59,000 60,000 64,000 67,000 71,000 74,000 77,000 75,000 68,000 62,000 73,000 805,000

Overhead Expense 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Overhead Expense 2,500 2,800 3,000 4,200 4,500 5,500 6,500 7,500 7,000 4,500 3,100 6,500 This following interesting points about the behavior of overhead costs has been revealed by the Scatter graph: 1 The relation between overhead expense and labor hours is shown by a straight line. However the overhead expenses show a downward trend due to increase in labor hours. This is mainly due to the fact of increasing returns to scale 2 The data points are all very close to the straight line. This indicates that most of the variation in overhead expenses is due to the fact of labor hours. Therefore, there is no use of using other cost driver 3 Overhead expenses are mainly consist of fixed expenses such as as rent, depreciation, and salary