978-0-07-802542-6

PROBLEM 2-21 PAGE 60

PROBLEM 221 High-Low Method; Predicting Cost [ LO 23 , LO 24 ] Golden Companys total overhead cost at various levels of activity are presented below: Month Machine-Hours Total Overhead Cost March . . . . . . . . . . . . . . . . . . . . . 50,000 $194,000 April . . . . . . . . . . . . . . . . . . . . 40,000 $170,200 May . . . . . . . . . . . . . . . . . . . . . 60,000 $217,800 June . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 $241,600

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 40,000 machine-hour level of activity is as follows: PROBLEM 221 High-Low Method; Predicting Cost [ LO 23 , LO 24 ] Golden Companys total overhead cost at various levels of activity are presented below: Month Machine-Hours Total Overhead Cost March . . . . . . . . . . . . . . . . . . . . . 50,000 $194,000 April . . . . . . . . . . . . . . . . . . . . 40,000 $170,200 May . . . . . . . . . . . . . . . . . . . . . 60,000 $217,800 June . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 $241,600 Utilities (variable) . . . . . . . . . . . . . . . . . $ 52,000 Supervisory salaries (fi xed) . . . . . . . . . 60,000 Maintenance (mixed) . . . . . . . . . . . . . . 58,200 Total overhead cost . . . . . . . . . . . . . . . $170,200 The company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $241,600 of overhead cost in June was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $241,600 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs within the relevant range.) 2. Using the high-low method, estimate a cost formula for maintenance.

3. Express the companys total overhead cost in the form Y 5 a 1 bX. 4. What total overhead cost would you expect to be incurred at an activity level of 45,000 machine-hours?