Question
Crosshill Companys total overhead costs at various levels of activity are presented below: Month Machine-Hours Total Overhead Cost April 70,000 $ 203,800 May 60,000 $
Crosshill Companys total overhead costs at various levels of activity are presented below:
Month | Machine-Hours | Total Overhead Cost | ||
April | 70,000 | $ | 203,800 | |
May | 60,000 | $ | 182,700 | |
June | 80,000 | $ | 224,900 | |
July | 90,000 | $ | 246,000 | |
Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000-machine-hour level of activity in May is as follows:
Utilities (variable) | $ | 51,600 |
Supervisory salaries (fixed) | 21,000 | |
Maintenance (mixed) | 110,100 | |
Total overhead cost | $ | 182,700 |
The company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $246,000 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $246,000 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Round the "Variable cost per unit" to 2 decimal places.)
2. Using the highlow method, estimate a cost formula for maintenance. (Round the "Variable cost per unit" to 2 decimal places.)
3. Express the companys total overhead cost in the form Y = a + bX. (Round the "Variable cost per unit" to 2 decimal places.)
4. What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours? (Round the "Variable cost per unit" to 2 decimal places.)
Maintenance cost in July Y= Total overhead costStep by Step Solution
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