High-Low and Cost Formula Harrison Company has accumulated the following total manufacturing overhead costs for two...
High-Low and Cost Formula
Harrison Company has accumulated the following total manufacturing overhead costs for two levels of activity (within the relevant range):
| Low | High | |
|---|---|---|
| Activity (direct labor hours) | 80,000 | 120,000 |
| Total manufacturing overhead | $234,000 | $302,000 |
The total overhead cost includes variable, fixed, and mixed costs. At 120,000 direct labor hours, the total cost breakdown is as follows:
| Variable cost | $132,000 |
| Fixed cost | 80,000 |
| Semi-mixed cost | $90,000 |
a. Using the high-low method of cost analysis, determine the variable portion of the semi-variable cost per direct labor hour. Determine the total fixed cost component of the mixed cost.
Isolate mixed costs:
Do not use negative signs with your answers.
| Low | High | |
|---|---|---|
| Total cost | Answer | Answer |
| Less: Variable cost | Answer | Answer |
| Fixed cost | Answer | Answer |
| Total mixed cost | Answer | Answer |
High-Low Analysis:
Round variable portion per unit to two decimal places, if
applicable.
| Direct Labor Hours | Total Mixed Cost | - | Variable Portion | = | Fixed Portion | ||
|---|---|---|---|---|---|---|---|
| High | Answer | Answer |
- |
Answer |
= |
Answer | |
| Low | Answer | Answer | Answer | Answer | |||
| Difference | Answer | Answer |
Variable portion per unit: $Answer
b. What should the total planned overhead cost be at 100,000 direct labor hours?
| Variable Cost Per Unit | Fixed Costs | |
|---|---|---|
| Variable cost | Answer | |
| Fixed cost | Answer | |
| Mixed: | ||
| Variable portion | Answer | |
| Fixed portion | Answer | |
| Totals: | Answer | Answer |
Total planned overhead for 100,000 direct labor hours $Answer
Homework Answers
| a | Total cost incurred | |||
| Direct labor hours | Total manufacturing overhead | |||
| High level of activity | 1,20,000 | $90,000 | ||
| Low level of activity | 80,000 | $66,000 | ||
| Change | 40,000 | $24,000 | ||
| Variable maintainance cost per direct labor hours =$24,000 / 40,000 =$0.60 per direct labor hours | ||||
| Fixed cost element =$90,000 - (120,000 hours*$0.60) | ||||
| Fixed cost element =$90,000 - $72,000 =$18,000 | ||||
| b | Variable cost per unit | Fixed Costs | ||
| Variable costs | $1.10 | |||
| Fixed Costs | $80,000 | |||
| Mixed: | ||||
| Variable portion | $0.60 | |||
| Fixed portion | $18,000 | |||
| Total | $1.70 | $98,000 | ||
| Total Costs at 100,000 hours | $1,70,000 | $98,000 | ||
| $2,68,000 | ||||
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