Cortez Company is planning to introduce a new product that will sell for $96 per unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year. Direct materials $800,000
Direct labor 640,000 (= $16 per hour à 40,000 hours)

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product.

Simple Regression Analysis Results
Dependent variableâFactory overhead costs Independent variableâDirect labor-hours Computed values

Intercept $120,000
Coefficient on independent variable $5.00
Coefficient of correlation 0.921
R^2 0.848

Required:
a. What percentage of the variation in overhead costs is explained by the independent variable?
b. What is the total overhead cost for an estimated activity level of 50,000 direct labor-hours?
c. How much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)?