Question
Crosshill Companys total overhead costs at various levels of activity are presented below: Month Machine-Hours Total Overhead Cost April 57,000 $ 119,000 May 47,000 $
Crosshill Companys total overhead costs at various levels of activity are presented below:
Month Machine-Hours Total Overhead Cost
April 57,000 $ 119,000
May 47,000 $ 149,000
June 67,000 $ 339,000
July 78,000 $ 177,000
Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 47,000-machine-hour level of activity in May is as follows:
Utilities (variable) $ 22,000
Supervisory salaries (fixed) 24,000
Maintenance (mixed) 103,000
Total overhead cost $ 149,000
The company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $177,000 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $177,000 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.
Maintenance cost in July:....................
2. Using the highlow method, estimate a cost formula for maintenance
High activity level
Low activity level
Change
Variable cost element:
fixed cost element
Y.....+......X
3. Express the companys total overhead cost in the form
Y = a + bX
4. What total overhead cost would you expect to be incurred at an activity level of 62,000 machine-hours?
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