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.
Required:
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.
Education
- B. Sc., University of Nigeria
- M. Sc., London South Bank University
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