Methods of Estimating Costs—High-Low, Scattergraph, and Regression: The Franklin Plant of the Ramon Company manufactures electrical components. Plant management has experienced difficulties with fluctuating monthly overhead costs. Management wants to be able to estimate overhead costs accurately to plan its operations and its financial needs. A trade association publication reports that for companies manufacturing electrical components, overhead tends to vary with machine-hours. A member of the controller's staff proposed that the behavior pattern of these overhead costs be determined to improve cost estimation. Another staff member suggested that a good starting place for determining cost behavior patterns would be to analyze historical data. Following this suggestion, monthly data were gathered on machine-hours and overhead costs for the past two years. There were no major changes in operations over this period of time. The raw data are as follows:

These data were entered into a computer regression program. The following output was obtained:

Required:

a. Use the high-low method to estimate the Franklin Plant overhead costs.

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

c. Use the results of the regression analysis to prepare the cost-estimation equation and to prepare a cost estimate for 22.500 machine-hours.

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Month Machine- Overhead Number Hours Costs 11 12 13 14 15 16 17 18 -234567BRO-234SATA 1 20,000 $84,000 25,000 99,000 22,000 89.500 23,000 90,000 20,000 81,500 19,000 75,500 14,000 70,500 8 10,000 64,500 9 12,000 69,000 10. 17,000 75,000 16,000 71,500 19,000 78,000 21,000 86,000 24,000 93,000 23,000 93,000 22,000 87,000 20,000 80,000 18.000 76,500 19 12,000 67,500 20 13,000. 71,000 21 15,000 73,500 22 17,000 72,500 23 15,000 71,000 24 18,000 75,000