Question
Crosshill Companys total overhead costs at various levels of activity are presented below: Month Machine-Hours Total Overhead Cost April 49,000 $173,870 May 39,000 $151,570 June
Crosshill Companys total overhead costs at various levels of activity are presented below:
Month | Machine-Hours | Total Overhead Cost |
April | 49,000 | $173,870 |
May | 39,000 | $151,570 |
June | 59,000 | $196,170 |
July | 69,000 | $218,470 |
Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000-machine-hour level of activity in May is as follows:
Utilities (variable) | $ | 42,900 |
Supervisory salaries (fixed) | 46,000 | |
Maintenance (mixed) | 62,670 | |
Total overhead cost | $ | 151,570 |
The company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $218,470 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $218,470 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Do not round intermediate calculations.)
Maintenance cost of July
2. Using the highlow method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)
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3. Express the companys total overhead cost in the form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)
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4. What total overhead cost would you expect to be incurred at an activity level of 44,000 machine-hours? (Do not round intermediate calculations.)
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