Question
PROBLEM 3-16 High-Low Method: Cost of Goods Manufactured (LO1. LO2] Nurally Inc. manufactures a single product. Selected data from the company's cost records for
PROBLEM 3-16 High-Low Method: Cost of Goods Manufactured (LO1. LO2] Nurally Inc. manufactures a single product. Selected data from the company's cost records for two recent months are given below: Level of Activity July-Low October-High Number of units produced. 9,000 12,000 Cost of goods manufactured. $285,000 $390,000 Work in process inventory, beginning. 14,000 22,000 Work in process inventory, ending. 25,000 15,000 Direct materials cost per unit. 15 Direct labour cost per unit 6 6 Manufacturing overhead cost, total. ? ? The company's manufacturing overhead cost consists of both variable and fixed cost elements. To have data available for planning, management wants to determine how much of the over- head cost is variable with units produced and how much of it is fixed per year. Required: 1. For both July and October, estimate the amount of manufacturing overhead cost added to production. The company had no underapplied or overapplied overhead in efther month. (Hint: Construct a schedule of cost of goods manufactured.) 2. Using the high-low method, estimate a cost formula for manufacturing overhead. Express the variable portion of the formula in terms of a variable rate per unit of product. 3. If 9,500 units are produced during a month, what will the cost of goods manufactured be? (Assume that the company's beginning work in process inventory for the month is $16,000 and that its ending work in process inventory is $19,000. Also assume that there is no underapplied or overapplied overhead cost for the month.)
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