The Jason Company is a manufacturer that is interested in developing a cost formula to estimate the fixed and cariable components of its monthly manufacturing overhead costs. The company wishes to use machine-hours as its measure of activity and has gathered the data below for this year and last year.

The company leases all 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 then fee becomes strictly variable with respect to the total number of machine-hours used during the month. Lease expense is a major element overhead cost.

1. Prepare a scattergram using all of the data for the two year period. Describe the cost behaviour pattern revealed by your scattergram plot
2. Based on (2), do you have any concerns about the accuracy of the high-low estimates that you computed?
3. Assume that the company consume 22,500 machine hours during the month. Using the high-low mehtod, estimate the total overhead cost that would be incurred at this level of activity. Be sure to consider only the data points contained in the relevant range of activity when performing your computations.