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Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with
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 1,362 $ 102,681 2 710 1,403 103,744 3 680 1,521 109,813 4 745 1,446 108,297 5 775 1,595 116,104 6 755 1,586 114,576 7 740 1,389 106,974 8 735 1,307 102,141 9 715 1,456 106,398 10 800 1,553 113,034 11 675 1,296 102,581 12 715 1,612 115,537 Required: a. Use the high-low method to estimate the fixed and variable portions of overhead costs based on machine-hours. b. Managers expect the plant to operate at a monthly average of 1,500 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation?
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