Reference no: EM132825571

Question - 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?