The following information is available regarding the total manufacturing overhea
ID: 2366911 • Letter: T
Question
The following information is available regarding the total manufacturing overhead of Bursa Mfg. Co. for a recent four-month period: Use the high-low method to determine the variable element of manufacturing overhead costs per machine-hour. (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Use the high-low method to determine the fixed element of monthly overhead cost. Hint: Due to the algorithmic nature of this problem, you must use the 'high' figures to obtain the correct answer. If we were using unrounded numbers on a standard problem, the fixed element could be obtained by using either the 'high' or the 'low' figures. (Round your intermediate calculations to 2 decimal places. Omit the "$" sign in your response.) 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. (Round your intermediate calculations to 2 decimal places. Omit the "$" sign in your response.) Suppose Bursa had used the cost relationships determined in part a to estimate the total manufacturing overhead expected for the months of February and March. By what amounts would Bursa have over- or underestimated these costs? (Negative amounts should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Omit the "$" sign in your response.)Explanation / Answer
(a1) Variable element of manufacturing overhead cost = (300000 - 190000)/(5200 - 3000) = 110000/2200 = $50 per machine hour (a2) Fixed element of manufacturing overhead = Total cost - Variable cost = 300000 - 50 x 5200 = $40000 (b)Estimated manufacturing overhead = 40000 + 50 x 5300 = $305000 (c) February = 40000 + 50 x 3200 = $200,000 Actual cost = $224000 Underestimate of cost = 200000 - 224000 = -$24000 March = 40000 + 50 x 4900 = $285000 Actual cost = 263800 Overestimate of cost = 285000 - 263800 = $21200 Hope my explanation helps!
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