Question

Crosshill Company's total overhead costs at various levels of activity are presented below. chine Total Month April May 19.000 39.000 59.000 69.000 $191, 360 164.560 $236.200 July Assume that the overhead cost above consists of utilities, supervisory salaties, and maintenance The breakdown of these costs at the 39,000-machine-hour level of activity in May is as follows: DELL) Super Scries te $ nes $2.500 43.000 59.06 16. The company wants to break down the maintenance cost into ts variable and feed cost elements Required: 1 Estimate how much of the 5246,660 of overhead cost in July was maintenance cost (Hit To do this first determine how much of the 5246.660 cod of times and supervisory salaries Think about the behaviour of variable and formed costs within the relevant range) (Do not round Intermediate calculations.) 2 Uing the high-ow method estimate a cost formula for maintenance (Do not round your intermediate calculations. Hound the "Variable cost per un to 2 decimal places) 6 000 3026 590 34.200 30 000 14.500 DOO

Answer 1

Requirement 1 Maintenance cost in July Working : $ 93,260 39000 MH $ Level of activity 69000 MH 164,460 $ 246,660 Total overhead cost Less : Utilities Cost @ $1.60 per Machine hour Supervisory salaries $ $ 62,400 $ 43,000 $ 110,400 43,000 Maintenance cost $ 59,060 $ 93,260 *Utility cost perMH = 62400/39000 = $1.6 Requirement 2 High Low analysis of Maintenance Cost : High Level Low Level Machine Hours Maintenance Cost 69000 $ 93,260 39000 $ 59,060 Change 30000 $ 34,200 1.14 Per Machine Hour Variable Rate = Change in Cost / Change in $ Total Fixed Cost : Total Cost at high level $ Less : Variable cost element (69000*1.14) $ Fixed Cost element $ 93,260 -78,660 14,600 Therefore, Cost formula: Y = $14,600 + $ 1.14 X Requirement 3 Fixed cost Utilities cost supervisory cost Maintenance cost Total overhead cost Therefore, Cost formula : Y = $57600 + $2.74 X Variable cost per MH $ 1.60 $ $ 1.14 $ $ 2.74 $ 43,000 14,600 57,600 Requirement 4 Total overhead cost @ 44000 MH Fixed Cost Add : Variable costs - $ 57,600 120,560 178,160 $ Note : Feel free to comment for any further assistance