Adriana Corporation manufactures football equipment. In planning for next year,

Question

Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor-hours, machine-hours, or both. The following data were collected from last years operations: Required: Use the high-low method to estimate the fixed and variable portions of overhead costs based on machine-hours. (Round your variable cost answer to 2 decimal places.) Managers expect the plant to operate at a monthly average of 1.500 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation?

Explanation / Answer

Cost at highest level of activity    110,416.00 Cost at Lowest level of activity      98,019.00 Highest level of activity        1,616.00 Lowest Level of activity        1,294.00 Variable cost per unit = (110416-98019)/(1616-1294) Variable cost per unit = 12397/322 Variable cost per unit = 38.50 Monthly Variable costs = 38.50*1294 Monthly Variable costs = 49819 Fixed Costs= 98019 - 49819 Fixed Costs= 48200 Variable costs at 1500 hours = 1500*38.50 Variable costs at 1500 hours = 57,750 Fixed Costs = 48200 Total Costs = 57750 + 48200 Total Costs = 105,950

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