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)