a) Nate Company ltd wants to determine the cost-volume relation between its factory overhead cost and number of units produced. The volume and the corresponding total cost information of the factory for past eight months are given below:

Month	Units	FOH
1	1,520	$36,375
2	1,250	38,000
3	1,750	41,750
4	1,600	42,360
5	2,350	55,080
6	2,100	48,100
7	3,000	59,000
8	2,750	56,800

Required:

i) Use the high-low method to split its factory overhead (FOH) costs into fixed and variable components and create a cost volume function (4 marks)

ii) Estimate the cost of producing 4,500 units of output (2 marks)

b) K.K ltd produces a single product which is meant for local market only. The monthly demand for this product varies from one month to the other. During the month of of October 2016, 1000 units were produced incurring the following expenses:

Shs

000

Direct materials 60

Direct labour 80

Rent(Fixed) 50

Electricity (40% fixed) 54

Property taxes and rates (80% variable) 100

Technical support(Fixed) 56

400

i) Using accounts analysis formulate the total cost function (4 marks)

ii) During the month of December, QPR ltd estimates to produce 1200 units. Calculate the estimated cost in December 2013. (2 marks)

a) Discuss the assumptions of the ordinary least squares method and the consequences if such assumptions are violated. (8 marks)