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Hadley Hardware, Inc.
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Hadley Hardware, Inc. [HHI] manufactures a variety of industrial products. As a consequence of increased competition and a general weakening of demand for its products, HHI has reduced production dramatically over the last 18 months. The Renton Plant, which manufactures electrical components, has been been especially hard hit by the decline in demand. By February 2009, monthly direct labor hours worked were running at about 50% of the level two years ealrlier. Monthly manufacturing overhead had declined to about 40% of the level experienced in March, 2007.

Industry experts predict that the market for products of the type HHI produces will remain relatively low until September or October 2009, after which there will be a substantial upturn. Management is now attempting to project monthly overhead costs for the next 12 months [March 2009 - February 2010]. Because of the drastic fluctuations in labor hours and overhead costs experienced over the last 18 months, management has found that its predictions of overhead costs have been seriously out of line with subsequent experience.  difficult to estimate the level of overhead that will be incurred for any one month. In an effort to improve the accuracy of its estimates of overhead costs, HHI has hired you to analyze the historical data and develop projections for the next 12 months. Historical data for the past 24 months are as follows:

Month Historical overhead costs DLH worked
Mar-07  $     163,350 25,000
Apr-07        129,775 22,500
May-07        135,000 23,000
Jun-07        153,600 24,000
Jul-07        144,150 23,000
Aug-07        121,800 22,000
Sep-07        105,000 20,500
Oct-07          97,800 20,000
Nov-07          90,850 19,500
Dec-07        116,100 21,000
Jan-08        104,000 20,000
Feb-08          75,000 17,000
Mar-08          72,000 16,000
Apr-08          85,800 19,500
May-08          75,000 18,000
Jun-08          75,500 18,000
Jul-08          73,500 17,000
Aug-08          68,500 12,000
Sep-08          71,000 13,000
Oct-08          72,800 15,000
Nov-08          71,000 15,000
Dec-08          70,500 14,000
Jan-09          68,000 10,000
Feb-09          69,000 12,000
Month Projected DLH
Mar-09       11,000
Apr-09       12,500
May-09       13,000
Jun-09       12,000
Jul-09       13,000
Aug-09       14,000
Sep-09       18,000
Oct-09       19,000
Nov-09       21,000
Dec-09       22,000
Jan-10       22,000
Feb-10       23,000

 

Required:

  1. Analyze the historical data to develop one or more cost prediction models for HHI. You will need to LOOK at the data and THINK about what id going on. Rote application of techniques discussed in class will not yield satisfactory results.
  2. Prepare a professional report summarizing your findings. Include explanations of what you have found. HHI managers are not statisticians, but they are intelligent people who want to know what the results of your analysis mean and why they are important. Your report should include cost projections for 2009-2010. Formatting, printing, and other aspects of professional presentation count. For best results, embed tables and plots in a Word document. Remember that tables and graphs do not stand for themselves. What do they mean? Why are they included?

Evaluation:

"A" papers will exhibit comprehensive, careful analysis which is professional in appearance in every respect. Statistical output will be correctly interpreted and explained. Alternative possible models will have been considered and evaluated. Cost predictions will be correct and reflect appropriate application of the concepts and tools covered in this section of the course.

"B" papers will exhibit most of the characteristics of "A" papers. Flaws in professional appearance will be minor. Interpretation of statistical output will be generally correct, with the exception of minor errors in interpretation or explanation. Alternative models will have been considered and evaluated. Cost predictions will be correct and reflect appropriate application of the concepts and tools covered in this section of the course.

"C" papers begin to demonstrate more serious errors in interpretation of statistical output, and may include more serious flaws in professional appearance. Alternative models may not have been thoroughly evaluated. Cost predictions may not be correct, and/or may reflect a lack of understanding of the concepts and tools covered in this section of the course.

"D" papers will have major flaws in professional presentation, such as [but not restricted to] printing across pages and spelling and/or grammatical errors. Interpretation of statistical output may be seriously in error; some analyses may be omitted. Explanations may be lacking or reflect a misunderstanding of the concepts and tools covered in this section of the course. Alternative models may not have been considered or evaluated. Cost predictions may be incorrect and/or reflect a lack of comprehension of the concepts and tools covered in this section of the course.

"E" papers may have major flaws in professional presentation, such as [but not restricted to] printing across pages and obvious spelling and/or grammatical errors. Interpretation of statistical output may be seriously in error; some analyses may be omitted. Explanations may be lacking or reflect a misunderstanding of the concepts and tools covered in this section of the course. Alternative models may not have been considered or evaluated. Cost predictions may be incorrect and/or reflect a lack of comprehension of the concepts and tools covered in this section of the course.

Copyright © 2010 Gerald M. Myers
Last modified: 1/31/2011; 17:24