Part A
Little Red Hood Inc. management has estimated the factory overhead cost as $1090 variable cost
and $1430 fixed cost to make 100 units using 500 machine hours.
1. Using the above information, derive the cost equation in the form of Y = a + bx.
2. Predict the cost with 550 machine hours.
3. Compare the above method of cost estimation with engineering approach, with respect to the
costs and benefits of the two approaches.