Academy products manufactures a variety of custom components for use in aircraft navigation and communications systems. The controller has asked for your help in estimating fixed and variable overhead costs for Academy's Rio Puerco plant. The controller tells you that the best cost driver for estimating overhead costs is machine-hours.

Monthly data on machine-hours and overhead costs for the last year have been collected and are shown below:

Month: Machine-hours OH Costs

1 630,000 $660,000

2 900,000 $2,170,000

3 765,000 $1,220,000

4 665,000 $780,000

5 1,035,000 $3,700,000

6 800,000 $1,400,000

7 750,000 $1,100,000

8 815,000 $1,500,000

9 935,000 $2,500,000

10 680,000 $840,000

11 715,000 $980,000

12 700,000 $910,000

A. Do any of the observations seem to be in error? If so which one? Drop that observation for all further calculations.

B. Determine the variable overhead cost per unit

C. Determine the fixed overhead cost.

D. Determine the expected overhead cost when machine hours equal 850,000.