Question

Crosshill Company's total overhead costs at various levels of activity are presented below: Month April May Machine- Hours 49,000 39,000 59,000 69,000 Total Overhead Cost $210,730 $186,030 $ 235, 430 $260,130 June July Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000-machine-hour level of activity in May is as follows: $ Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) 50, 700 70,000 65,330 Total overhead cost $ 186,030 The company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $260,130 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $260,130 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Do not round intermediate calculations.) Maintenance cost in July $ 100,430

Answer 1

Answer-1-Compute the maintenance cost in the total overhead cost of $260,130:-

Total Overhead Cost=Utilities +Supervisory salaries +Maintenance

$260,130=$89,700+$70,000+Maintenance

Maintenance= $260,130-$89,700-$70,000

=$100,430

Note: Utilities cost per day= $50,700/ 39,000*69,000

=$89,700

2-Using the high-low method the cost formula for maintenance is:-

Maintenance cost =$19,700( 1.17* Machine Hours)

Working Note:-

The change is high low method is calculated as:-

	Machine Hours	Maintenance Cost
High activity level	69,000	$100,430
Low activity level	39,000	$65,330
Change	30,000	$35,100

Variable cost per unit= Cost at high activity level-Cost at low activity level/ Units at high activity -Units at low activity

=$35,100/ 30,000

=$1.17 per hour

Fixed cost= Total cost-variable cost element

=100,430-(1.17*69,000)

=100,430-80,730

=$19,700

3-Express the company's total overhead cost in the linear equation form= Y=a+bx

Total overhead cost= Y

Total fixed cost= a

Total Variable overhead per hour= b

Required Machine hours=x

Y=a+bx

Y=$89,700+$2.47 * Machine hours

Working Notes:-

Total Fixed cost= supervisiory salaries+fixed component in mixed maintenance cost

=$70,000+$19,700

=$89,700

Total Variable cost= utilities per hour+ variable component per hour in mixed maintenance cost

=$1.17+$1.3

=$2.47 per machine hour

4-The total factory overhead cost for 44,000 machine hours:-

Machine Hours	44,000
Variable Cost:-
Utilities ($1.3*44,000)	$57,200
Fixed Cost:-
Supervisor Salary	$70,000
Maintenance Cost:-
Fixed Cost	$19,700
Variable Cost ($1.17*44,000)	$51,480
Total Cost	$198,380

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