The King Corporation is developing a model to explain and predict overhead costs. It produces only one product-line so that a simple count of the number of units produced each month may be a good measure of activity to begin with. The company has collected data for the past twelve months:

Month Overhead Production Cost Units ---- ------------ ---------- 1 $254,500 40,000 2 184,500 24,000 3 165,400 21,000 4 178,000 23,000 5 192,000 25,000 6 225,000 31,000 7 210,000 28,000 8 230,000 30,000 9 195,000 29,000 10 224,000 36,000 11 200,000 32,000 12 240,000 38,000

1. Open a spreadsheet and enter the data.

2. Create another worksheet and enter High-Low method formula to calculate variable cost per unit and total fixed costs. Use y = a + b(x) formula. Enter a (total fixed costs) in Cell 20B and b (variable cost per unit) in Cell 20C. 3. Create another worksheet and run regression (Least Squared Method) and save the output. 4. Create another worksheet and save both outputs by linking worksheets. Determine whether the High-Low method or Regression Analysis is better to predict monthly overhead costs. Explain which model is the better? Why or why not? 5. Use the results of your regression analysis in the y = a + b(x) formula to predict overhead costs for January and December of next year. Use a 12-month average of your current year production units for the projection for both months. Do you think these predicted overhead costs are reasonable?