IDENTIFYING THE PARTS OF THE COST FORMULA;

CALCULATING MONTHLY, QUARTERLY, AND YEARLY COSTS USING A COST FORMULA BASED ON MONTHLY DATA Gordon Company’s controller, Eric Junior, estimated the following formula, based on monthly data, for overhead cost:

Overhead Cost ¼ $109,743 þ ($80.75 3 Direct Labor Hours)

Required:

. Link each term in column A to the corresponding term in column B.

Column A Column B Overhead cost Variable rate (slope)

$109,743 Independent variable

$80.75 Fixed cost (intercept)

Direct labor hours Dependent variable

. If next month’s budgeted direct labor hours equal 5,000, what is the budgeted overhead cost?

. If next quarter’s budgeted direct labor hours equal 18,000, what is the budgeted overhead cost?

. If next year’s budgeted machine hours equal 58,000, what is the budgeted overhead cost?

Exercise