Question 1

Harbour Inc. collected the following data for the first six months of the year concerning its overhead costs and machine hours used.

Month	Overhead Costs ($)	Machine Hours
Jan	$62,000	400
Feb	52,000	320
Mar	64,000	395
Apr	58,000	350
May	57,000	350
June	54,000	325

Required -

a) Harbour suspects that machine hours are driving overhead costs. Use the high-low method to calculate the:

i. variable cost per machine hour;

ii. monthly fixed cost.

b) Harbour predicts that 375 machine hours will be used in July. Calculate the estimated overhead cost for July.

c) Why is the high-low method inferior to the regression estimation method (provide 1 reason only)?