Waverley Welding Company provides welding services for a variety of industrial customers in the manufacturing, aerospace, and electronics industries. The number of jobs completed from one month to the next varies considerably, and jobs differ in terms of the complexity of the welding requirements. More complex jobs can take significantly longer to complete. Management knows that overhead costs have a fixed and a variable component but, until now, has not attempted to determine which measure of activity should be used for planning and forecasting.

The table below shows data for the most recent fiscal year. Management believes that either the number of jobs completed each month, or the number of direct labour-hours incurred each month could be used as the activity base. However, they are not sure which is more appropriate:

Month Overhead Direct Labour-Hours Jobs

January $ 75,845 5,581 500

February $ 70,291 4,348 350

March $ 72,793 4,790 400

April $ 82,017 6,266 550

May $ 52,882 2,714 200

June $ 69,164 3,957 250

July $ 79,151 5,800 500

August $ 82,382 7,714 600

September $ 78,491 5,908 500

October $ 69,155 4,424 350

November $ 70,686 4,700 400

December $ 84,234 6,500 510

Overhead includes costs such as the maintenance supervisor's salary, depreciation on the welding equipment, and indirect materials used on each job. Electricity costs are also included in overhead and are significant since welding equipment consumes a relatively high amount of energy. Waverley Welding also employs a mix of experienced and inexperienced welders. Experienced welders are paid a higher hourly wage but are more efficient and tend to incur less wastage of indirect materials. Inexperienced welders are of course paid less on a per hour basis but work more slowly and use more indirect materials.

Required:

1. Use the High-Low Method to estimate a cost formula for overhead costs

a. Use direct labour hours as the activity base.

b. Use number of jobs completed as the activity base

2. Use the Simple Regression Method by spreadsheet to estimate a cost formula for overhead costs

a. Use direct labour hours as the activity base.

b. Use number of jobs completed as the activity base

3. Create Scatter charts for 2a and 2