Question

Cycle Accessories manufacturers cellphone holders that can be mounted on the handle bars of most motorcycles. The manufacturing process is highly automated and management feels that machine-hours are likely the main driver of overhead costs. Data from the most recent year are shown below.

Month	Machine-Hours	Overhead Costs
January	2,400	$	54,700
February	2,460		56,620
March	2,700		62,700
April	3,420		68,020
May	3,600		70,210
June	4,200		71,480
July	4,800		78,170
August	5,400		79,180
September	5,100		76,620
October	3,600		69,560
November	2,760		64,370
December	4,800		76,030

Required:

1. Using least-squares regression, estimate the fixed cost and variable cost elements of monthly overhead costs. Estimate the fixed cost element to the nearest dollar and the variable cost element to the nearest cent.

2. If the company expects to use 3,900 machine-hours next month, estimate total overhead costs.

Answer 1