Question

Crosshill Company's total overhead costs at various levels of activity are presented below. Month pril May Machine Hours 19,000 39,000 59,000 69.000 Total Overhead Cost $191,860 $164,460 $219, 260 $246,660 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) 62.400 43.000 59,060 nces Total overhead coat $164.960 The company wants to break down the maintenance cost into its variable and fixed cost elements Required: 1. Estimate how much of the 5246,660 of overhead cost in July was maintenance cost. (Hint To do this, first determine how much of the $246 660 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 mlshod, estimate a cost formula for maintenance (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.) Cost High activity level Low activity level Change OS 0 Vantecost cement Fixed cost dement

Answer 1

1 Maintenance cost in July $93,260 Working notes: Total $62,400 per unit Utilities (variable) $1.60 $62,400/39,000 July total cost Utilities (variable) Supervisory salaries Maintenance cost $246,660 $110,400 69,000*$1.6 $43,000 Fixed cost $93,260 Balance N High activity level Low activity level Change Machine hours 69,000 39,000 30,000 Maintenance cost $93,260 see working below $59,060 $34,200 Variable cost element per MH Fixed cost element $1.14 Per MH $14,600 $34,200/30,000 (Total cost ) - ( 69,000*$2.74) Y = $14,600 + $1.14X