The Company uses a lot of machinery, so the company uses machine hours to compute its predetermined overhead rate using normal costing. Steve Perry, the accountant for the company, is using machine hours to compute estimated overhead for the company. Data for the last 9 years are as follows:

Machine Hours Overhead Cost

Year 1 43,000 $734,000

Year 2 41,000 $720,000

Year 3 52,000 $830,000

Year 4 48,000 $790,000

Year 5 36,000 $780,000

Year 6 38,000 $655,000

Year 7 40,000 $702,000

Year 8 45,000 $768,000

Year 9 47,000 $786,000

Whenever needed, please round your variable cost per hour to the nearest cent, and round your total fixed costs to the nearest dollar.

Using the high-low method, develop and show the formula to predict yearly overhead cost. Your formula should be in the form Y = a + bX, where Y = total costs, a = total fixed costs, b = the variable overhead rate, and X denotes the number of machine hours.

2.

On an EXCEL spreadsheet, use the +SLOPE(known y's, known x's) and the +INTERCEPT(known y's, known x's) to develop the regression formula to predict overhead cost. As in question 1, your formula should be in the form Y = a + bX. Please copy/paste your spreadsheet in the answer space, as well as showing me the formula.

3.

If Steve Perry estimates a level of 50,000 machine hours in Year 10, compute the predetermined overhead rate for Year 10 using

A. the high-low method.

B. the regression method.

4.

Which of the two methods from question 3 is preferable? You don't have to explain why. Just tell me the method.

5.

At any level of activity within the relevant range, if activity goes up by 400 machine hours, how much would we expect estimated overhead cost to increase using

A. the high-low method

B. the regression method.

6.

Go back to your spreadsheet in question 2 and change the overhead cost in Year 5 from $780,000 to $770,000. Again, what would be the formula for predicting overhead cost using

A. the high-low method

B. the regression method (you don't have to copy/paste your spreadsheet this time, just give me the formula)