**Developing and Using a Predetermined Overhead Rate: High-Low Cost Estimation****Overview:**Mattoon Components Company has traditionally used an actual plant-wide overhead rate, pricing items based on cost plus a 30% markup. Recently, problems arose due to the variability of prices. Marketing manager Holly Adams and production manager Sue Walsh expressed concerns about inconsistent pricing.- **Adams' Viewpoint:** Pricing seems irrationally higher when business is bad and lower when it's good. High prices during low-volume months make it difficult to attract customers.- **Walsh's Viewpoint:** Overtime in some months and layoffs in others are problematic, worsened by natural demand fluctuations which the accounting system amplifies.**Required Analysis:****a. Argument Evaluation and Suggestions:**Adams and Walsh bring up valid issues regarding price fluctuations and labor cost inefficiencies. To mitigate these, consider adopting a more stable costing method, such as predetermined overhead rates, and adjusting the markup strategy to respond to market trends.**b. Historical Data:**- **Year 1:** - Total manufacturing overhead: $325,000 - Direct labor hours: 34,000- **Year 2:** - Total manufacturing overhead: $380,500 - Direct labor hours: 40,000**c. High-Low Method Application:**Using the high-low method, develop a cost-estimating equation for total manufacturing overhead. **d. Predetermined Rate for Next Year:**Calculate it with the assumption of 35,000 direct labor hours budgeted.**e. Activity Level and Overhead Analysis:**- If the next year’s labor hours are 36,000 and manufacturing overhead is $341,550, determine if manufacturing overhead is underapplied or overapplied.**f. Handling Manufacturing Overhead:**Provide two ways to address any underapplied or overapplied manufacturing overhead at year-end.**Table Summary:**| Year | Total Manufacturing Overhead | Direct Labor Hours ||-------|------------------------------|--------------------|| Year 1| $325,000 | 34,000 || Year 2| $380,500 | 40,000 |This table outlines the overhead costs and labor hours for Year 1 and Year 2, which are essential for using the high-low method to estimate future costs.The discussion emphasizes addressing pricing strategies and improving

“Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for you. To get remaining sub-part solved please repost the complete question and mention the sub-parts to be solved.” High-low method is used to segregate the variable and fixed components of a cost. Segregation of overheads into fixed and variable; facilitates decision making in respect of cost control, or selection of method for absorption of overheads. a. Suggestions for improvement of accounting and pricing procedures: Lowering prices during low volume seasons and moderate prices during high volume periods. Keeping average number of employees throughout the period; so that, the costs remain moderate and unnecessary layoffs could be avoided. Fixed manufacturing overheads should not be charged according to the labor hours b. Computation of variable and fixed component of the Total manufacturing overheads: Segregation of variable and fixed components of Total manufacturing overheads: Cost-estimating equation: Here, Total manufacturing overheads is “TOH” Fixed overheads is “F” Variable overheads per hour is “V” Direct labor hours is “H” c. Computation of predetermined overhead rate: Thus, predetermined overhead rate for the next period would be $9.55 per direct labor hour.