(b) The management of Limuru Processing Company Limited wishes to obtain better cost estimates to evaluate the companys operations more effectively.

The following information is provided to you for analysis:

Year 2016 Equivalent production Overheads

Month Units (000) Sh.000

January 1,425 12,185

February 950 9,875

March 1,130 10,450

April 1,690 15,280

May 1,006 9,915

June 834 9,150

July 982 10,133

August 1,259 11,981

September 1,385 12,045

October 1,420 13,180

November 1,125 13,180

December 980 10,430

Additional information:

1. In November, the opening work in progress inventory contained 1,000,000 units that were 30% complete with respect to conversion costs.

2. During the same month of November, the manufacturing department transferred 1,500,000 units.

3. The closing inventory for the month of November was 1,200,000 units and the units were 305 incomplete with respect to conversion costs

4. Using the above information, you have obtained the following variables by applying simple regression analysis.

Sh. 000

Constant 3,709

Slope 6,487

Required:

i) Use the high-low method to estimate the overhead cost function.

ii) Use the regression method to determine the overhead cost function.

iii) Compute the equivalent units of production with respect to conversion costs for the month of November using the FIFO method. (4 marks)

iv) Use the regression function formulated in (ii) above to estimate the overhead cost for the month of November.