Wickstrom currently uses labor hours to predict overhead. However, the accountant at Wickstrom has suggested that machine hours would be a better predictor of overhead cost than labor hours. The following data have been provided to you from the past year:

Required
A. Using the high/ low estimation method, determine the cost equation when direct labor hours is used as the independent variable.
B. Using the high/ low cost estimation method, determine the cost equation when machine hours is used as the independent variable.
C. What is the estimated amount of overhead if 2,200 direct labor hours are worked next month?
D. What is the estimated amount of overhead if 4,200 machine hours are worked?
E. Which of these variables, direct labor hours or machine hours, do you believe is more useful? Why?

Machine Hours Month January February March April May June July Overhead Cost $54,500 53,400 Labor Hours 1,600 1,950 3,100 1,850 2,000 2,100 1,950 2,500 2,400 Labor Hours 3 ,600 68,900 80,100 82,200 Overhead Cost 5,100 Machine Hours Month September October November December $69,900 71,500 77,400 1,700 2300 2450 2600 4,100