Green Earth, Inc. provides commercial landscaping services. Ronnie Chapman, the firm's owner, wants to develop cost

estimates that she can use to prepare bids on jobs. After analyzing the firm's costs, Chapman has developed the following

preliminary cost estimates for each $1,000$ square feet of landscaping.

Direct materials

$$400$

Direct labour $(5$ direct$-$labour hours at $$10$ per hour$)$

$$50$

Overhead $($at $$18$ per direct$-$labour hour$)$

$$90$

Total cost per $1,000$ square feet

$$540$

Chapman is quite certain about the estimates for direct material and direct labour. However, she is not as comfortable with the

overhead estimate. The estimate for overhead is based on the overhead costs that were incurred during the past $12$ months as

presented in the following schedule. The estimate of $$18$ per direct$-$labour hour was determined by dividing the total overhead

costs for the $12-$month period $($$$648,000)$ by the total direct$-$labour hours $(36,000).$

a$.$ Chapman believes that overhead is affected by total monthly direct$-$labor hours. Her friend advised her to use

high$-$low method to estimate overhead cost. Use the high$-$low method to state the cost formula of overhead cost.

b$.$ Chapman decided to perform a least$-$squares regression of overhead $(OH)$ on total direct$-$labor hours $($DLH$).$ The

following regression formula was obtained.

$OH=25,150+9\mathrm{.}62DLH$

Please refer to requirement $($a$)$ and explain the difference in the two overhead rates.

c$.$ The overhead rate developed from the least$-$squares regression is different from Chapman' preliminary estimate of

$$18$ per direct$-$labor hour. Explain the difference in the two overhead rates.

d$.$ Using the overhead formula that was derived from the least$-$squares regression, determine a total variable$-$cost

estimate for each $1,000$ square feet of landscaping.