X Company uses account analysis to estimate annual overhead costs. To determine

Question

X Company uses account analysis to estimate annual overhead costs. To determine the parameters of the annual overhead cost function, it used data from 2012, when 1,180 units were produced. Total costs and total variable costs in 2012 were as follows:

                       Total        Variable

Supplies        $28,000    $28,700

Utilities          16,400      10,988

Maintenance   20,400      7,140

Insurance       12,700       0

Total              $78,200   $46,828

If production in 2013 is expected to be 1,320 units, what are estimated total variable costs in 2013?

Explanation / Answer

Hi,

Please find the answer as follows:

Total Variable Costs (1180 Units) = 28700 (Supplies) + 10988 (Utilities) + 7140 (Maintenance) = 46828

Total Variable Cost for 1320 Units = 46828/1180*1320 = 52383.86

Answer is 52383.86

Thanks.

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