ABC has opened a small printing shop 12 months ago. ABC give good printing services and the business is growing steadily,except for February which is a slack month due to long holiday. Its manager, Mr adam has been studying the overhead cost and its relationship with machine hours.
Extracted text: Data from the most recent 12 months follow. February 1,600 June 6,520 Month April 4,560 May 6,880 January March Overhead 5,030 7,210 costs (RM) Machine 2,730 600 3403 2,200 3,411 2,586 hours September October November December 6,010 Month July August 5,570 7,728 5,810 Overhead 6,230 4,580 costs (RM) Machine hours 3,364 2,411 3,960 2,897 2,207 | 2,864 In order to better understand the relationship between machine hours and overhead costs, Adam has carried out regression analysis on the above data and the following regression analysis have been obtained. Constarit R2 b coefficient 428 0.99 1.86 The number of machine hours for next month is expected to be 3,000. Required: a) Using the results of the regression analysis, calculate an estimate of overhead costs for next month. b) Do you share Adam's confidence that the above estimate of next month's costs is likely to be accurate? Explain why or why not. c) Identify the outlier and develop an alternative estimate of next month's costs using the high-low method, and explain why this method is generally less reliable than regression analysis as a basis for cost estimation.