High-low method Following information is available regarding the total manufactu

Question

High-low method Following information is available regarding the total manufacturing overhead costs of Paymore, Inc., for five months in 2010: Month/Machine-hours/Mfg. Overhead costs February/6,900/$6,250 March/5,000/$5,375 April/6,300/$6,025 May/9,333/$7,975 June/6,833/$6,050 A. Using the high-low method, compute the following: 1. The variable element of overhead cost per machine hour. 2. The fixed element of monthly overhead costs. B. Use the cost relationship determined in part 'a' to estimate the total manufacturig overhead costs for July 2010, given that 7,250 machine-hours are scheduled.

Explanation / Answer

FOLLOW THIS High-Low Method Formulas Variable Cost per Unit Variable cost per unit (b) is calculated using the following formula: Variable Cost per Unit = y2 ? y1 x2 ? x1 Where, y2 is the total cost at highest level of activity; y1 is the total cost at lowest level of activity; x2 are the number of units/labor hours etc. at highest level of activity; and x1 are the number of units/labor hours etc. at lowest level of activity In other words, variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost

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