Managers in the Stamping Department have been studying overhead cost and the relationship with machine hours. Data from the most recent 12 months follow.

Month Overhead        Machine hours

January 5,030             2,730

February 1,600                 600

 

 March 7,210            3,403 

 

April 4,560             2,200

May 6,880             3,411

June 6,520              2,586

July 6,230                 3,364

August 5,570                2,411

September 7,728      3,960

October 5,810            2,897

November 4,580             2,207

December 6,010              2,864

The manager of the department has requested a regression analysis of these two variables. The staff person performing the analysis decided to exclude February. She observed that the volume of activity was very low for that month because of two factors: a severe flu outbreak and an electrical fire that disrupted operations for about 10 working days.

REQUIRED:

1. Submit an overhead cost breakdown by using the high-low method. The analysis should be useful in helping to predict variable and fixed costs under normal operating conditions.

2. submit a cost formula for overhead costs using the results obtained in Number 1. Using the formula, how much is the estimated overhead costs for 3,000 machine hours?

3. submit an overhead cost breakdown by using the method of least squares. The analysis should be useful in helping to predict variable and fixed costs under normal operating conditions.

4. Submit a cost formula for overhead costs using the results obtained in Number 3. Using the formula, how much is the estimated cost for 3,000 machine hours?