Question

Dundar Mifflin makes electronic products for the RCMP. The following data is for the first six months:

            

	Direct Labor Hours	Manufacturing Overhead
January	45,000	$295,000
February	59,900	$307,575
March	57,000	$323,000
April	58,000	$320,000
May	27,800	$158,600
June	29,000	$152,500

Required:

1. Use the high-low method to estimate the cost formula                                (3 marks)

2. Estimate the total overhead cost at an activity level of 41,000 machine hours, using the separate estimates you obtained for its components.                                                                         (2 marks)

Answer 1

Working Notes: 1
	CALCULATION OF VARIABLE COST PER UNIT
	Variable Cost per unit = High Level Total Cost - Low Level Total Cost / Change in Units Produced
	High level month =	February
	Low Level Month =	May
	Manufacturing Overhead                                       =	Feb Overhead	-	May Overehead	=	Difference
	Manufacturing Overhead	$              3,07,575	-	$           1,58,600	=	$                1,48,975
	Divide By					"/" By
	Change in Direct Labor Hours	59,900	-	27,800	=	32,100
		Units		Units	=	Units
	Equals to Variable Cost Per unit				=	$                      4.641
Working Notes: 2
	Calculation of Fxed Cost
	For the month of February	59900	Labor Hours
	Fixed Cost =	Total Cost	"-"	Variable Cost
	Fixed Cost =	$              3,07,575	"-"	$     2,77,993.85
				(59,900 X $ 4.641)
	Fixed Cost =	$            29,581.15
Solution:
	Calcuation of Total Overhead activities for 41,000 Machine Hours
	Variable Cost = 41,000 Hours X $ 4.641	$        1,90,279.60
	Add: Fixed Cost	$            29,581.15
	Total Cost	$        2,19,860.75
	Total Cost (Round off to nearest $)	$              2,19,861
	Answer = Total Overhead Cost = $ 219,861