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    Management accounting: high-low method of cost estimation

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    ABC Company's total overhead costs at various levels of activity are presented below:

    Machine Hours Total Overhead Costs
    March 60,000 $216,800
    April 50,000 $194,000
    May 70,000 $239,600
    June 80,000 $262,400

    Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the 50,000 machine-hour level of activity these costs are:

    Utilities (V) $ 54,000
    Supervisory salaries (F) 62,000
    Maintenance (M) 78,000
    Total overhead cost $194,000

    V = Variable; F = Fixed; M = Mixed

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


    a. Estimate the maintenance cost for June.

    b. Use the high-low method to estimate the cost formula for maintenance cost.

    c. Estimate the TOTAL overhead cost at an activity level of 55,000 machine hours. (Note that Part C is asking about total overhead cost and not just maintenance cost)

    ****** Carefully label each part of your answer.

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    Solution Summary

    The problem set deals with cost apportionment in management accounting.