The Ramesh Company manufactures a wide range of products at several different factory locations. The Ruiru plant which manufactures electrical components, has been experiencing some difficulties with fluctuating monthly overhead costs. The fluctuations have made it difficult to estimate the level of overhead costs that will be incurred for any one month.

Management wants to be able to estimate overhead costs accurately in order to better plan for its operations and financial needs. A manufacturing association bulletin to which Ramesh Company subscribes indicates that for companies manufacturing electrical components, overhead costs tend to vary with direct labour hours.

One member of the accounting staff suggested that a good starting point is to determine the cost estimating function of overhead costs by analyzing the historical cost and production data. She has suggested the use of simple linear regression method. Data on direct labour hours and overhead costs incurred for the past two years has been put together as shown below.

Month	Year 2017 Direct Labour hours	Overhead Costs (Sh)	Year 2018 Direct Labour Hours	Overhead Costs (Sh)
January	20,000	86,000	21,000	86,000
February	25,000	99,000	24,000	93,000
March	22,000	89,500	23,000	93,000
April	23,000	90,000	22,000	87,000
May	20,000	81,500	20,000	80,000
June	19,000	75,500	18,000	76,500
July	14,000	70,500	12,000	67,500
August	10,000	64,500	13,000	71,000
September	12,000	69,000	15,000	73,500
October	17,000	75,000	17,000	72,500
November	16,000	71,500	15,000	71,000
December	19,000	78,000	75,000	75,000

(a) Use the in-built regression function in your calculator to estimate the fixed overhead costs per month and the variable costs per direct labour hour.

(b) Use MS Excel to analyse the data using simple linear regression at 99% confidence interval.

(i) Paste the summary output from the regression analysis. Hint. Format the output appropriately.

(ii) Write the overhead cost estimating function.

(iii) Evaluate the estimating function using;

- Coefficient of determination, R2

- The global test (F-test) Hint: the hypotheses for this test are;

Ho: 0 = 1 = 0; H1: At least one i is not equal to zero

(iv) Assess whether the information appearing in the manufacturing association bulletin in regarding to the overhead cost driver is accurate. Hint: Use t-test.