Exercise 5-36 (Algo) Methods of Estimating Costs: High-Low (LO 5-4)

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			Machine-Hours			Overhead Costs
1		720			1,359		$	102,766
2		710			1,412			103,763
3		690			1,512			109,896
4		735			1,446			108,304
5		785			1,582			116,242
6		750			1,576			114,479
7		735			1,397			106,933
8		730			1,310			102,066
9		710			1,447			106,319
10		785			1,551			113,112
11		670			1,284			102,453
12		710			1,608			116,061

Required:

a. Use the high-low method to estimate the fixed and variable portions of overhead costs based on machine-hours.

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?

Complete this question by entering your answers in the tabs below.

• Required A
• Required 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?

• Required A
• Required B

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.)

Required A

Variable cost (per machine hour)	$
Fixed cost	$

Required 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?

Overhead costs

$