Goulburn, Inc. produces parts for heavy equipment used in mining and construction. The plant that produces one part common to many vehicles is highly automated, so all labor is considered part of factory overhead. The plant manager, who has just been promoted, would like to understand how overhead costs fluctuate in order to improve planning and budgets. After discussions with both financial and operations members of the plant staff, there is general agreement that the best cost driver for overhead is machine-hours. 

Monthly data were collected from the most recent two years on machine-hours and overhead. More months of data were available, but a process change had taken place about 30 months earlier, so the staff believed any data from before that time would be misleading. The data are shown in the following table: 

Required

a. Use the high-low estimation method to estimate the overhead cost behavior (fixed and variable components of cost) for the Goulburn plant.

b. Prepare a scattergraph showing the overhead costs plotted against the machine-hours.

c. Use a spreadsheet program to compute regression coefficients to describe the overhead cost equation.

d. Use the results of your regression analysis to develop an estimate of overhead costs assuming 48,000 machine-hours will be worked next month.

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1234 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 A Month 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 B Machine-Hours Factory Overhead 527,100 416,500 365,800 498,200 590,700 503,400 476,900 702,400 39,300 $ 37,300 30,100 42,400 50,600 45,500 42,400 62,100 36,300 53,700 52,700 36,300 59,900 58,900 45,500 39,300 55,800 50,600 60,900 49,600 53,700 C 29,100 59,900 58,900 425,300 661,000 616,700 490,500 693,000 654,700 580,000 527,900 683,400 613,700 669,500 619,100 672,100 445,000 692,400 718,500