Question

3: Assignment Seved Help Save & Exit Crosshill Company's total overhead costs at various levels of activity are presented below: 5 Month April May June July Machine- Hours 54,000 44,000 64,000 74,000 Total Overhead Cost $236,980 $209,280 $264,680 $292,380 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: Book $ Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) 70,400 69,000 69,880 Total overhead cost $ 209,280 The company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $292,380 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $292,380 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 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.) NEXT < Prev 6 of 6 Me Gew

Answer 1

may activity & cost machine hour utilities (variable) Supervisory salaries (fixed) maintinance (mixed) 44000 70400 69000 69880

utilties cost is a variable as given, vary with the activity.

supervisor salary is fixed it will be remain unchanged.

maintinance cost is mixed which has both component fixed as well as variable.

Answer to Part1-

utility cost per unit for may = Utilities cost/Machine shours

=70400/44000

= $ 1.6

Maintinance cost of july = Total cost - machine hours of july*$ 1.6 - fixed cost of supervisory salary for july month

= 292380 - 74000*1.6 - 69000

= 292380 - 118400 - 69000

= $ 104980

Answer to Part 2

machine maintina Hours nce cost 74000 104980 44000 69880 High Activity level Low activity level change 30000 35100 variable cost element fixed cost element 1.17 per MH 184001

Using High low method, variable cost per unit = (Highest activity cost - lowest activity cost)/(Highest activity unit - lowest activity units)

variable cost per unit = (104980 - 69880)/(74000-44000)

= 35100/30000

= $ 1.17

Y = 18400 + 1.17*x

where x - no. of activity units

Answer to Part 3

variable cost per machine hour Fixed cost 1.6 0 01 69000 utilities Cost Supervisor salaries cost Maintinance cost Total overhead cost 1.17 18400 87400 2.77

Y = 87400 + 2.77X

Where X- No. of activity units

Answer to Part 4

at 49000 machine hours Total overhead cost = 2.77*49000 + 87400

= 135730 + 87400

= $ 223130

Please check with your answer and let me know.