John, a cost analyst for a manufacturing firm, was asked to estimate the overhead costs at one of the factories. He interviewed the supervisor and several workers there to get a feel of how overhead costs changed. His experience with the cost accounting system pointed to the use of machine hours as the cost driver for overhead items.

Over the last 12 months, the total overhead costs were $103,918. John determined that total fixed overhead costs totaled $4,620 per month; the rest are variable costs. For the same period of time, 4,519 machine hours were incurred in that factory.  

 

Required:

1. What is the general cost equation (TC = F + VX) that describes the relation between overhead costs and machine hours?
2. If the factory expects to spend 400 machine hours next month, what is the expected amount of overhead costs?