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Exercise 5-31 Methods of Estimating Costs: Account Analysis (LO 5-3) Records at Hal's Accounting Services show the following costs for year 1: S Direct materials
Exercise 5-31 Methods of Estimating Costs: Account Analysis (LO 5-3) Records at Hal's Accounting Services show the following costs for year 1: S Direct materials and supplies Employee costs Total Overhead 47,000 2,600,000 1,320,000 Production was 50,000 billable hours. Fixed overhead was $730,000. Assuming no change in billable hours in year 2, direct materials and supplies costs are expected to increase by 10 percent. Direct labor costs are expected to increase by 15 percent. Variable overhead per billable hour is expected to remain the same, but fixed overhead is expected to increase by 5 percent. Required: a. Year 2 production is expected to be 40,000 billable hours. What are the estimated direct materials, direct labor, variable overhead, and fixed overhead costs for year 2? (Do not round intermediate computations.) Year 2 Cost Cost Item Direct materials and supplies Direct labor Variable overhead Fixed overhead Total costs b. Determine the total costs per billable hour for year 1 and year 2. (Round your answers to 2 decimal places.) Costs Per Billable Hour Year 1 Year 2 Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor-hours, machine-hours, or both. The following data were collected from last year's operations: Month Labor-Hours 720 715 680 750 785 760 745 735 Machine-Hours 1.351 1,411 1,524 1.446 1,592 1,587 1.383 1.312 1.461 1.538 1,288 1,608 Overhead Costs S 102,647 103,826 109.939 108,270 116,214 114,472 107,082 102.179 106,498 113.062 96,969 109,129 700 795 665 705 Required: a. Use the high-low method to estimate the fixed and variable portions of overhead costs based on machine-hours. (Round "Variable cost" answer to 2 decimal places.) Variable cost (per machine hour) Fixed cost b. Managers expect the plant to operate at a monthly average of 1.400 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation? (Round "Variable cost" answer to 2 decimal places.) Overhead costs
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