AOEN Company's total overhead cost at various levels of activities are presented below:

Assume that the total overhead cost above consists of utilities, supervisory salaries, and

maintenance. The breakdown of these costs at the $60,000$ machine$-$hour level of activity is:

AOEN Company's management wants to break down the maintenance cost into its variable

and fixed cost elements.

Instructions:

a$)$ How much of the $$312,000$ of factory overhead costs in December was maintenance cost.

b$)$ Using the high$-$low method, estimate a cost formula for maintenance.

c$)$ Express the company's total factory overhead cost in the linear equation form $Y=a+bx.$

d$)$ What total factory overhead cost would you expect to be incurred at an activity level of

$65,000$ machine hours?

a$)$ How does the concept of "margin of safety" in CVP analysis relate to the risk tolerance of

a business? Explain how a company can use margin of safety to make informed decisions ahout

its operations.

b$)$ How does the concept of contribution margin ratio relate to the break$-$even point, and why

is it a crucial tool for managers in making short$-$term decisions?