1.2. COSTS (20 points) a) The Ramon Company is a manufacturer that is interested in developing a cost formula to estimate the fixed and variable components of its monthly manufacturing overhead costs. The company wishes to use machine- hours as its measure of activity and has gathered the data below for this year and last year Last Year This Year Januar Februa March April Ma June Jul August September $ October November S December S Month Machine-Hours Overhead CostsMachine-Hours Overhead Costs 86,000 93,000 93,000 87,000 80,000 76,500 67,500 71,000 73,500 72,500 71,000 75,000 21,000 S 25,000 S 22,000 S 23,000 S 20,500 S 19,000S$ 14,000S$ 10,000S 12,000 S 17,000|S 16,000S 19,000 $ 84.000 99,000S 89,500 S 90,000S 81,500S 75,500 70,500$ 64,500$ 69,000 75,000S 71,500$ 78,000S 21,000S 24,000S 23,000 S 22,000$ 20,000S 18,000S 12,000$ 13,000S 15,000S 17,000$ 15,000 s 18,000S The Company leases all of its manufacturing equipment. The lease arrangement calls for a flat monthly fee up to 19,500 machine-hours. If the machine-hours used exceeds 19,500, then the fee becomes strictly variable with respect the total number of machine-hours consumed during the month. Lease expense is major element of overhead cost. i)Using the high-low method, estimate a manufacturing overhead cost formula. ii)Prepare a scattergraph using all of the data for the two-year period. Fit a straight line or lines to the iii) Obtain the regression equation. Do you have any concerns about the accuracy of the high-low iv)Assume that the company consumes 22,500 machine-hours during a month. Using the high-low plotted points. Describe the cost behavior patter revealed by your scattergraph plot estimates that you have computed or the least-squares regression estimates that you got? method, estimate the total overhead cost that would be incurred at this level of activity. Be sure to consider only the data points contained in the relevant range of activity when performing your computations v)Comment on the accuracy of your high-low estimates with the least-squares regression