Question

The following information is available regarding the total manufacturing overhead of Olaf Company for a recent four-month period.

	Machine Hours		Mfg. Overhead
April	70,000		$	176,000
May	50,000		$	159,000
June	105,000		$	219,500
July	101,000		$	187,000

Using the high-low method, compute the fixed element of Olaf's monthly overhead cost.

Multiple Choice

• $81,300

• $104,000

• $100,500

• $60,500

Answer 1

Answer : B = $ 104000.

High - Low Method.

>> Variable cost per hour = ( $ 219500 - $ 159000 ) / ( 105000 - 50000 ) = $ 1.1.

>> Fixed cost + Variable cost = Total cost.

At high volume.

>> Fixed cost + ( 105000 * $ 1.1 ) = $ 219500.

>> Fixed cost = $ 104000