High-Low Cost Estimation and Simple Regression Analysis

Assume we have the following observations relating to overhead costs and direct labor hours for Department A of the ABC Company.

Direct Labor Hours	Overhead Costs
15	40
20	50
14	35
13	30
18	44
15	36
12	31
16	41
18	42
19	45

Required:

1. Determine the budgeted overhead costs for Department A in a month where there are 13 direct labor hours if the high-low method of estimating cost behavior patterns is used.

2. Using regression analysis determine what the budeted overhead cost should be in a month when Department A should work 13 direct labor hours.

3. Does the regression line in #2 explain the data well? Why?

4. What is the range within which 95 percent of the observations should lie?