Question
Diamond Company's total overhead costs at various levels of activity are presented below: Machine hours Total overhead costs March 60,000 $216,800 April 50,000 194,000 May
Diamond Company's total overhead costs at various levels of activity are presented below:
Machine hours | Total overhead costs | |
March | 60,000 | $216,800 |
April | 50,000 | 194,000 |
May | 70,000 | 239,600 |
June | 80,000 | 262,400 |
Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the 50,000-machine-hour level of activity, these costs are presented below:
Utilities (V) | $54,000 |
Supervisory salaries (F) | 62,000 |
Maintenance (M) | 78,000 |
Total overhead costs | $194,000 |
V = Variable, F = Fixed, M = Mixed The company wants to break down the maintenance cost into its basic variable and fixed cost elements.
Required:
- Estimate the maintenance cost for June.
- Use the high-low method to estimate the cost formula for maintenance cost.
- Estimate the total overhead cost at an activity level of 55,000 machine hours, using the separate estimates you obtained for its components.
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