Question 3 - Mixed cost analysis and relevant ranges The Roakes Company is interested in developing a cost equation to estimate the fixed and variable components of its monthly manufacturing overhead costs. The company wishes to use machine hours as its measure of activity and has gathered the following data: 2018 January February March April May June July August September October November December January February March April May Machine Hours 21,000 25,000 22.000 23,000 20,500 19,000 14.000 10,000 12,000 17,000 16,000 18.500 21,000 24,000 23,000 22.000 20,000 Overhead Costs $84,000 $100,000 $89,500 $90,000 $81,500 $75,500 $70,500 $66,500 $69,000 $75,000 $71,500 $77,000 $86,000 $93,000 $93,000 $87,000 $78,000 2019 April May June July August September October November December 22,000 20,000 18,000 12,000 13,000 15,000 17,000 15,000 18,000 $87,000 $78,000 $76,500 $67,500 $71,000 $73,500 $72,500 $71,000 $75,000 The company leases all of its manufacturing equipment. The lease arrangement calls for a flat monthly fee up to 19,500 machine hours. If the machine hours used exceeds 19,500, the monthly fee becomes strictly variable with respect to the total number of machine hours consumed during the month. Lease expense is a major element of overhead costs. Required: (a) Prepare a scatterplot using the above data. Change the x-axis range to 8,000-26,000 and the y-axis range to 60,000-110,000. Using the high-low method, estimate the cost equation for manufacturing overhead costs using all of the data points given. Do you have any concerns about the accuracy of the cost equation estimated using the high-low method? What are your concerns? Based on the lease arrangement described above, divide the data points into two relevant ranges. State the two relevant ranges. Estimate the cost equation for each relevant range using the high-low method. (d) Assume that the company uses 22,500 machine hours during a month. Based on your results in (c), estimate the total manufacturing overhead costs that would be Incurred