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Cost appotionment using High-low method

Here are records from manufacturer who used direct labor hours as its cost driver:

Month Direct Labor Hours Manufacturing Overhead
Jan. 23,000 $454,000
Feb. 30,000 517,000
Mar. 34,000 586,000
Apr. 26,000 499,500
May 25,000 480,000
Jun. 28,000 515,000

March's costs had machine supplies ($102,000), depreciation ($15,000) and plant maintenance ($469,000). These costs exhibit the following respective behavior: variable, fixed and semi-variable.
The manufacturing overhead figures presented in the table do not include supervisory labor costs, which is step-fixed in nature. For volume levels of less than 15,000 hours, supervisory labor amounts to $45,000. The cost is $90,000 from 15,000-29,999 hours and $135,000 when activity reaches 30,000 hours or more.

a. What are the machine supplies cost and depreciation in January?

b. Using high-low method, analyze plant maintenance cost and calculate the monthly fixed portion and the variable cost per direct labor hou.

c. Assume that cost behavior patterns continue into the latter half of the year. Estimate the total amount of manufacturing overhead the company can expect in November if 29,500 direct-labor hours are worked.

d. Major differences in fixed and step fixed cost

e. If the company has a step fixed cost, where on the step should the firm attempt to operate if it desires to achieve a maximum return on its investment?

Solution Summary

The problem deals with apportioning cost by using the high-low method.

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