Assume that the total overhead cost above consist of utilities,
supervisory salaries and maintenance. The breakdown of these costs
at the 60,000 machine hour level of activity is: Utilities
(variable)……………………………………48,000
supervisory salaries
(fixed)…………………………..21,000
maintenance
(mixed)………………………………..105,000
174,000
Nova managements want to break down the maintenance cost into
variable and fixed cost elements.
required:
1. Estimate how much of the $246,000 of overhead cost in July was
maintenance cost.
2. using the high-low method, estimate a cost formula for
maintenance.
3. express the company’s total overhead cost in the linear equation
form Y=a+bX
4. what total overhead cost would you expect to be incurred at an
operating activity level of 75,000 machine hour?
1 | ||
Total overhead cost | 246000 | |
Less: Utilities | 72000 | =48000/60000*90000 |
Less: Supervisory salaries | 21000 | |
Maintenance cost in July | 153000 | |
2 | ||
Machine hours | Maintenance cost | |
High level | 90000 | 153000 |
Low level | 60000 | 105000 |
Difference | 30000 | 48000 |
Variable cost | 1.60 | =48000/30000 |
Fixed cost | 9000 | =153000-(90000*1.60) |
Y = 9000 + 1.60 X | ||
3 | ||
Variable cost per machine hour |
Fixed cost | |
Utilities cost | 0.80 | |
Supervisory salaries cost | 21000 | |
Maintenance cost | 1.60 | 9000 |
Total overhead cost | 2.40 | 30000 |
Y = 30000 + 2.40 X | ||
4 | ||
Total overhead costs | 210000 | =30000+(75000*2.40) |
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