Question

X Company uses the high-low method to predict monthly overhead costs. The following were May and...

X Company uses the high-low method to predict monthly overhead costs. The following were May and September cost and activity results:

OH Cost Production
May $8,878   2,700     
September $12,680   4,650     

If December production is expected to be 3,700 units, what are expected total fixed overhead costs in December [round unit costs to two decimal places]?

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Answer #1
Computation of Variable OH cost per unit
Formula = (Highest OH cost - Lowest OH Cost) / (Highest Prod. Units - Lowest Prod. Units)
= ($ 12680 - $ 8878) / (4650 - 2700)
= $      1.95
Computation of Variable Cost and Fixed Cost
Units Total Cost Variable Cost Fixed Cost
(Total Cost - Variable Cost)
2700 $   8,878.00 $       5,265.00 $             3,613.00
(2700 x $ 1.95) ($ 8878 - $ 5265)
4650 $ 12,680.00 $       9,067.00 $             3,613.00
(4650 x $ 1.95) ($ 12680 - $ 9067)
3700 $ 10,828.00 $       7,215.00 $             3,613.00
(3700 x $ 1.95)

Answer: $ 3613

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