Question
Toronto Steel Fabricators make metal castings for buildings. The company's accountant likes to estimate overhead costs for the year 2022. To help him understand how
Toronto Steel Fabricators make metal castings for buildings. The company's accountant likes to estimate overhead costs for the year 2022. To help him understand how costs behave in the company's manufacturing process he wants to how much of the manufacturing overhead costs are fixed and what should be the variable cost rate. Data for the past six months are as follows:
Month | Overhead Cost | Machine Hours |
---|---|---|
January | $9,200 | 10,120 |
February | 9,600 | 11,100 |
March | 9,350 | 10,500 |
April | 8,800 | 9,800 |
May | 8,400 | 8,660 |
June | 9,400 | 10,650 |
Required: (Please show detailed work including formulas used to get full credit):
A) Using the high low method, calculate the fixed cost component of overhead and the variable rate per machine hour.
B) What would be the cost formula that can be used to calculate the total overhead cost?
C) Assume that 7,800 machine hours are likely to be used in the coming month, what would be the total overhead cost
based on the above calculations.
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