avadi Company makes a single product that is subject to wide seasonal variations

Question

avadi Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below:

avadi Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below:

Explanation / Answer

Using the high-low method, estimate the fixed manufacturing overhead cost per quarter and the variable manufacturing overhead cost per unit.

variable = (230,000 - 194,000)/(120,000 - 30,000) = $0.40

fixed = 230,000 - .40*120,000 = $182,000

Fixed manufacturing overhead cost: $182,000 per quarter
Variable manufacturing overhead: $0.40 per unit

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