Question

Crosshill Company’s total overhead costs at various levels of activity are presented below:

 

Month	Machine-Hours	Total Overhead Cost
April	73,000	$	141,000
May	63,000	$	159,000
June	83,000	$	333,000
July	93,000	$	211,000

 

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 63,000-machine-hour level of activity in May is as follows:

 

Utilities (variable)	$	33,000
Supervisory salaries (fixed)		21,000
Maintenance (mixed)		105,000
Total overhead cost	$	159,000

 

The company wants to break down the maintenance cost into its variable and fixed cost elements.

 

Required:

1. Estimate how much of the $211,000 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $211,000 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Round the "Variable cost per unit" to 2 decimal places.)

 

 

2. Using the high–low method, estimate a cost formula for maintenance. (Round the "Variable cost per unit" to 2 decimal places.)

 

 

3. Express the company’s total overhead cost in the form Y = a + bX. (Round the "Variable cost per unit" to 2 decimal places.)

 

 

4. What total overhead cost would you expect to be incurred at an activity level of 78,000 machine-hours? (Round the "Variable cost per unit" to 2 decimal places.)