Question
Prince Companys total overhead costs at various levels of activity are presented below: Month Machine Hours Total Overhead Cost September 112,800 $ 781,512 October 89,200
Prince Companys total overhead costs at various levels of activity are presented below: |
Month | Machine Hours | Total Overhead Cost | ||||
September | 112,800 | $ | 781,512 | |||
October | 89,200 | $ | 662,568 | |||
November | 157,200 | $ | 1,005,288 | |||
December | 165,000 | $ | 1,044,600 | |||
Assume that the overhead cost above consists of utilities, supervisory salaries, depreciation, and maintenance. The breakdown of these costs at the 89,200-machine-hour level of activity in October is as follows: |
Utilities (variable) | $ | 233,704 | |
Supervisory salaries and depreciation (fixed) | 172,000 | ||
Maintenance (mixed) | 256,864 | ||
Total overhead cost | $ | 662,568 | |
The company wants to break down the maintenance cost into its variable and fixed cost elements. |
Required: |
1. | Estimate how much of the $1,044,600 of overhead cost in December was maintenance cost. (Hint: To do this, first determine how much of the $1,044,600 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Do not round intermediate calculations.) |
2. | Using the highlow method, estimate a cost formula for maintenance. (Round variable cost to 2 decimal places and fixed cost to the nearest dollar amount.) |
3. | Express the companys total overhead cost in the form Y = a + bX. (Round variable cost to 2 decimal places and fixed cost to the nearest dollar amount.) |
4. | What total overhead cost would you expect to be incurred at an activity level of 99,200 machine-hours? (Do not round intermediate calculations.) |
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