the manager at Screaming Trees has been trying to calculate the portion of the?

Question

the manager at Screaming Trees has been trying to calculate the portion of the? company's overhead expenses that is fixed and the portion that is variable. Over the past twelve? months, the number of yards of processed was highest in? July, when the total monthly overhead costs totaled

$32,000 for 37,000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in? October, when total overhead costs were $24,000 for 24,000 yards of mulch processed. What is the fixed portion of the monthly overhead? expenses?

Explanation / Answer

first let us calculate the variable portion:

variable portion = (change in expense) / change in activity

=> ($32,000 -$24,000) / (37,000 - 24,000 yards)

=>$8000 / 13000 yards.

=>$0.6154 per yard. is variable portion.

we shall substitute this at 24,000 yards level

=> variable portion + fixed portion = total cost at 24,000 yards level.

=> ($0.6154 * 24,000 yards) + fixed cost = $24,000

=>fixed cost = $24,000 - 14,769.60

=>fixed portion = $9,230..........(rounded to nearest dollar).

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