Question

X Company uses the high-low method to predict monthly overhead costs. The following were January and March cost and activity results: January March OH Cost $6,472 $13,323 Production 1,550 5,100 If December production is expected to be 2,350 units, what are expected total fixed overhead costs in December [round unit costs to two decimal places]?

Answer 1

Ans.
	*To calculate fixed overhead cost, first of all we need to find out the variable cost
	per unit.
	Variable cost per unit = (Highest OH cost - Lowest OH cost) / (Highest production - Lowest production)
	($13,323 -$6,472) / (5,100 - 1,550)
	$6,851 / 3,550
	$1.93 per unit
	Now, we can calculate the fixed overhead cost by using either highest activity or lowest activity.
	*Calculation of fixed overhead cost using Highest production:
	Fixed overhead cost = Highest cost - (Highest production * Variable cost per unit)
	$13,323 - (5,100 * $1.93)
	$13,323 - $9,843
	$3,480
	*Fixed overhead costs are always remain constant, so December month's fixed overhead cost is $3,480.