Quality Tools Incorporated would like to estimate costs associated with its sales personnel. Salespeople are paid a salary plus commission. Commission rates vary among products and are based on sales dollars. The company reported the following monthly cost data related to sales personnel.

Required

a. Use the five steps of the scattergraph method to estimate total fixed costs per - month, and the variable cost per machine hour (rounded to the nearest cent).
State your results in the cost equation form Y = f + vX.

b. What would Quality Tools’ estimated costs be if it had sales of $12,500,000 next month?

c. What would Quality Tools’ estimated costs be if it had sales of $20,000,000 next month? Why should you feel uncomfortable estimating costs for 15,000 machine hours?

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Reporting Period Total (Month) Costs Sales Amount January $710,000 $13,800,000 February 695,000 13,600,000 March 765,000 15,100,000 April 650,000 12,000,000 May 775,000 15,500,000 June 750,000 14,700,000 July 715,000 14,500,000 August 680,000 13,100,000 September 830,000 16,500,000 October 815,000 16,000,000 November 800,000 15,600,000 December 690,000 13,200,000