Assume that the overhead cost above consists of utilities, supervisory salaries,

Question

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000 machine-hour level of activity is as follows:

Estimate how much of the $241,200 of overhead cost in June was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $241,200 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs within the relevant range.) (Do not round intermediate calculations. Omit the "$" sign in your response.)

Using the high-low method, estimate a cost formula for maintenance. (Round the "Variable cost per unit" to 2 decimal places and "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Maintenance Cost for June = 241200 - 50700/39000*69000 (Utilities) - 54000 (Supervisor Salaries) = 97500

Part B:

You need to calculate maintenance cost at the highest and lowest levels of activity in this case

Maintenance Cost (High Level) = = 241200 - 50700/39000*69000 (Utilities) - 54000 (Supervisor Salaries) = 97500

Maintenance Cost (Low Level) = 166200 - 50700/39000*39000 (Utilities) - 54000 (Supervisor Salaries) = 61500

Variable Maintenance Cost = (97500 - 61500)/(69000 - 39000) = 1.2 per hour

Fixed Cost = 97500 - 69000*1.2 = 14700

Equation = Y = 14700 + 1.2X

Thanks.

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