The management of Limuru Processing

Company Limited wishes to obtain better cost estimates to evaluate the company's operations more effectively.

The following information is provided to you for analysis:

Year 2004

Equivalent

Overheads

production

Units ('000')

Month

Sh.'000'

1,425

12,185

January

February

950

9,875

March

1,130

10,450

1,690

15,280

April

May

1,006

9,915

June

834

9,150

982

10,133 11,981

July

August

September

1,259

1,385

12,045

October

1,420

13,180

November

1,125

13,180

December

980

10,430

Additional

information:

1. In November, the opening work in progress inventory contained 1,000,000 units that were 30% complete with respect to conversion costs.

2. During the same month of November, the manufacturing department transferred 1,500,000 units.

3. The closing inventory for the month of November was 1,200,000 units and the units were 305 incomplete with respect to conversion costs

4. Using the above information, you have obtained the following variables by applying simple regression analysis.

Sh. '000'

Constant

3,709

Slope

6,487 Required:

i) Use the high-low method to estimate the overhead cost function.

ii) Use the regression method to determine

the overhead cost function.