Karil Teeze Building Ltd is an estate developer based in Laos. The company’s overhead costs fluctuate considerably from year to year according to the number of direct labor-hours worked in the various building sites. The business has the following details for the firstquarter of 2019:

The overhead costs consist of indirect materials, rent, and electrical installation. The company has analyzed the cost of 60,000 direct labor-hours level of activity and has determined that at this activity level, the cost exists in the following proportions:

Required

For planning purposes, the company wants to break down the electrical installation costs into its fixed and variable cost elements.
1. Determine how much of the ₭282,000 overhead costs at the high level of activity consists of electrical installation costs.
2. Use the high-low method to determine the fixed cost element for electrical installation costs.
3. State and solve the linear cost equation.
4. Comment on the pros and cons of high-low method.

Transcribed Image Text:

Direct labor-hours Total overhead costs Level of Activity Low 60,000 *224,000 High 80,000 *282,000