Question

Crosshill Company’s total overhead costs at various levels of activity are presented below:

Month	Machine-Hours	Total Overhead Cost
April	54,000	$188,180
May	44,000	$163,980
June	64,000	$212,380
July	74,000	$236,580

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 44,000-machine-hour level of activity in May is as follows:

Utilities (variable)	$	52,800
Supervisory salaries (fixed)		44,000
Maintenance (mixed)		67,180
Total overhead cost	$	163,980

The company wants to break down the maintenance cost into its variable and fixed cost elements.

1. Estimate how much of the $236,580 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $236,580 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Do not round intermediate calculations.)

2. Using the high–low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

	Machine- Hours	Maintenance
Cost High activity level
Low activity level
Change	0	$0
Variable cost element		per MH
Fixed cost element

Y= ___+ ____x

3. Express the company’s total overhead cost in the form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

	Variable Cost per Machine-Hour Fixed Cost Utilities cost Supervisory salaries cost Maintenance cost Total overhead cost $0.00 $0

Y= ___+ ____x

4. What total overhead cost would you expect to be incurred at an activity level of 49,000 machine-hours? (Do not round intermediate calculations.)

Total overhead cost =

Answer 1

1
Total overhead cost	236580
Less: Utilities	88800	=52800/44000*74000
Less: Supervisory salaries	44000
Maintenance cost in July	103780
2
	Machine hours	Maintenance cost
High activity level	74000	103780
Low activity level	44000	67180
Change	30000	36600
Variable cost element	1.22	=36600/30000
Fixed cost element	13500	=103780-(74000*1.22)
Y = 13500 + 1.22 X
3
	Variable cost per machine hour	Fixed cost
Utilities cost	1.20
Supervisory salaries cost		44000
Maintenance cost	1.22	13500
Total overhead cost	2.42	57500
Y = 57500 + 2.42 X
4
Total overhead costs	176080	=57500+(49000*2.42)