Question
Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the
Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor-hours, machine-hours, or both.
The following data were collected from last year's operations:
Month Labor-Hours Machine-Hours Overhead Costs
1 735 1,355 $ 102,726
2 710 1,413 103,828
3 680 1,514 109,913
4 730 1,456 108,395
5 780 1,584 116,185
6 750 1,584 114,537
7 750 1,399 107,057
8 725 1,310 102,096
9 700 1,455 106,455
10 795 1,543 113,156
11 675 1,298 99,912
12 715 1,614 112,236
Required:
a. Use the high-low method to estimate the fixed and variable portions of overhead costs based on machine-hours. (Round "Variable cost" answer to 2 decimal places.)
Variable Cost (per machine hour)
Fixed cost
b. Managers expect the plant to operate at a monthly average of 1,600 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation? (Round "Variable cost" answer to 2 decimal places.)
Overhead costs
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