Wiser Industries manufactures two products, W-1 and W-2, for industrial use. Relevant manufacturing overhead information for the past 12 months is provided in Exhibit I. After discussions with the production manager, you have determined that machine hours are the cost driver that most directly affects manufacturing overhead. Below is a summary of costs for October based on 40,500 hours per month.

Supervisor salaries	$200,000
Maintenance cost	418,800
Depreciation	175,000
Utilities	450,000

Management believes that supervisor salaries and depreciation costs are primarily fixed and approximately equal from month to month. Whereas utilities are primarily variable and maintenance cost is a mixed cost.

Exhibit I

Miscellaneous Cost Breakdown by Month

Month	Cost	Machine Hours
January	$ 944,500	28,500
February	918,500	26,250
March	1,135,000	36,700
April	832,600	22,000
May	1,315,800	38,500
June	1,146,088	35,600
July	987,000	29,750
August	848,600	20,800
September	1,278,000	40,100
October	1,243,800	40,500
November	1,337,000	39,000
December	915,000	24,900

Required:

1. Estimate how much of the overhead cost in August was maintenance cost. (2 marks)
2. Using the high-low method, estimate a cost formula for maintenance. (4 marks)
3. Provide the cost function for total overhead costs. (4 marks)
4. Assume Wiser has decided to use the cost function you have developed in requirement 3 as a base to analyze costs for the upcoming fiscal year. Determine the cost function for total manufacturing overhead assuming the following: (3 marks)

• • Supervisor salaries increase by 4%.
  • The utility company has announced that rates will be higher next year. The company believes this increase will cause utilities to increase by 3% per month.
  • The fixed portion of maintenance costs will increase by $10,000 per month and the variable component will increase by 2%.

1. Expected production for January next year is 30,000 hours. What total overhead cost would you expect? (2 marks)