3.13 tends to vary The Ramon Company manufactures a wide range of products at several different plant locations. The Franklin plant, which manufactures electrical components, has been experiencing some difficulties with fluctuating monthly overhead costs. The fluctuations have made it difficult to estimate the level of overhead that will be incurred for any one month. Management wants to be better able to to estimate overhead costs accurately in order to plan its operations and financial needs. A trade association publication to which Ramon Company subscribes indicates that for companies that manufacture electrical com components, overheadt to vary with direct labor hours. One member of the acco of the accounting staff proposes that the cost overhead costs be determined. Then, overhead costs could be predicted from the budgeted direct labor hours. Another member of the accounting staff suggests that a good starting point for determining the cost behavior patterns of overhead costs would be an analysis of historical data. The historical cost behavior pattern would provide a basis for determining the cost behavior pattern. The methods proposed for this purpose are the high-low method and simple linear regression. Data on direct labor hours and the respective overhead costs incurred were collected for the past two years. The raw data follow: behavior pattern for h6 19A January February March April May June July August September October November December Direct Labor Hours x 20,000 hours 25,000 22,000 23,000 20,000 100 19,000 14,000 Overhead Costs y $84,000 99,000 89,500 90,000 81 500 81,500 75,500 70,000 64,500 69,000 75,000 71.000 78,000 10,000 12,000 17,000 16,000 19.000 19B January February March April May June July August September Direct Labor Hours x 21,000 hours 24,000 23,000 22.000 22.000 20.000 18,000 10 12.000 15. 13,000 15.000 17.000 15,000 18.000 Overhead Costs y $86,000 93,000 93,000 87,000 80.000 ce 76,500 67,500 71,000 October November December 73,500 72,500 71,000 75,000 Using linear regression, the following data were obtained: Coefficient of determination (r?) 0.9109 Coefficient of regression equation Constant 39.859 Independent variable 2.1549 Standard error of the estimate (8) Standard error of the regression coefficient for the independent variable (s) 0.1437 Table t-statistic for a 95% confidence interval (when n-2 = 24 - 2 = 22) 2.074 2,840 (a) Using the high-low method, determine the cost behavior pattern of the overhead costs for the Franklin plant. (b) Using the results of the regression analysis, calculate the estimate of overhead costs for 22,500 direct labor hours