The management of Casablanca Manufacturing Corporation believes that machine-hours is an appropriate measure of activity for overhead cost Shown below are machine-hours and total overhead costs for the past six months:
Jan 150,000 339,000
Feb 140,000 328,000
Mar 160,000 350,000
Apr 130,000 319,500
May 170,000 362,500
Jun 200,000 400,000
Assume that the relevant range includes all of the activity levels mentioned in this problem.
If Casablanca expects to incur 185,000 machine hours next month, what will the estimated total overhead cost be using the high-low method?
We take the highest and the lowest cost
200,000 400,000 ...
The solution explains the use of high low method to calculate the variable and fixed costs.