The following information is available regarding the total manufacturing overhea

Question

The following information is available regarding the total manufacturing overhead of Bursa Mfg. Co. for a recent four-month period Machine-Manufacturing January February March April Hours 5,300 3,200 4,900 2,700 Overhead 300,000 224,000 263,800 180,000 a-1. Use the high-low method to determine the variable element of manufacturing overhead costs per machine-hour. (Round your answer to 2 decimal places.) a-2. Use the high-low method to determine the fixed element of monthly overhead cost. b. Bursa expects machine-hours in May to equal 5,300. Use the cost relationships determined in part a to forecast May's manufacturing overhead costs c. Suppose Bursa had used the cost relationships determined in part a to estimate the total manufacturing overhead expected for the months of February and March. By what amounts would Bursa have over- or underestimated these costs? Manufacturing overhead cost per machine hour Fixed element of monthly overhead cost 2 b. Estimated manufacturing overhead cost Amount c. February March

Explanation / Answer

a-1. Manufacturing overheads cost = $             46.15 per machine hour a-2. Fixed element of monthly overhead cost = $           55,385 b. Estimated overhead cost = $       3,00,000 c. February = $           20,923 Underapplied March = $           17,738 Overapplied Workings: Month Machine hours Manufacturing Overheads High Activity = January         5,300 $                                  3,00,000 Low Activity = April         2,700 $                                  1,80,000 Difference =         2,600 $                                  1,20,000 a-1. Variable cost per unit = Difference in total cost / Difference in activity = ($1,20,000) / (2,600) = $             46.15 per machine hour a-2. Fixed Cost = Total cost - (Variable cost per socks X Activity) = $3,00,000 - ($46.15 X 5,300) = $           55,385 or = $1,80,000 - ($46.15 X2,700) = $           55,385 b. Total manufacturing overheads cost for may = Fixed cost + Variable cost = $55,385 + ($46.15 XMachine hours) = $55,385 + ($46.15 X 5,300) = $       3,00,000 c. February = 3,200 Machine hours Actual overheads applied = 2,24,000 Estimated overheads Total manufacturing overheads cost = Fixed cost + Variable cost = $55,385 + ($46.15 X3,200) = $       2,03,077 Over/Under applied overheads = Actual overheads - Estimated overheads = $2,24,000 - $2,03,077 Under applied overheads = $           20,923 March = 4,900 Machine hours Actual overheads applied = 2,63,800 Estimated overheads Total manufacturing overheads cost = Fixed cost + Variable cost = $55,385 + ($46.15 X4,900) = $       2,81,538 Over/Under applied overheads = Actual overheads - Estimated overheads = $2,63,800 - $2,81,538 Over applied overheads = $           17,738

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