Question

Academy Products manufactures a variety of custom components for use in aircraft navigation and communications systems. The controller has asked for your help in estimating fixed and variable overhead costs for Academy’s Rio Puerco plant. The controller tells you that the best cost driver for estimating overhead is machine-hours.

Monthly data on machine-hours and overhead costs for the last year have been collected and are shown as follows.

Month	Machine-Hours			Overhead Costs
1		660,000		$	649,000
2		930,000			2,200,000
3		780,000			1,250,000
4		695,000			810,000
5		1,050,000			3,730,000
6		830,000			1,430,000
7		765,000			1,130,000
8		830,000			1,530,000
9		965,000			2,530,000
10		695,000			870,000
11		730,000			1,010,000
12		730,000			940,000

Required:

a. Estimate the monthly fixed costs and the unit variable cost per machine-hour using the high-low estimation method. (Round variable cost per unit to 1 decimal place.)

b. Draw a scattergraph relating overhead costs to the number of machine-hours.

Instructions:

1. Click on a point to the right of the graph.
   2. Click within the graph to place the point.
   3. To enter exact coordinates, click on the point and then click on the processing wheel symbol and then enter the exact coordinates in the dialog box that pops up.
   4. Click OK.

Answer 1