S. A company\'s total overhcad cost at various levels of activity is presented b
ID: 2563525 • Letter: S
Question
S. A company's total overhcad cost at various levels of activity is presented below Total Overhead Cost $21.750 $19,000 $25,000 $28.750 Moeth Machine-Hours 3,000 4,000 6,000 ,000 March April May June Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 4,000 machine-hour level of activity is as follows: Utilities (variable).... Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost$19,000 S 8,000 . 4,000 7,000 company uses the high-low method to estimate a cost formula for maintenance What is total maintenance cost the company expects to incur at an activity level of 6 machine hours? ,500 A. $10,125 B. $14,125 C. $23,125 D. $27,125 E. None of the above 6. Minist Corporation sells a single product for $15 per unit. Last year, the company's sales revenue was $225,000 and its net operating income was $18,000. If fixed expenses totaled $72,000 for the year, the break-even point in unit sales was (choose the closest answer): A. 15,000 B. 9,900 C. 14,400 D. 12,000 E. 18,000Explanation / Answer
5. Breaking maintenance costs into variable and fixed costs using high low method:
of the OH costs. sum are fixed, variable and mixed.
Utilities for 4000 hours= 8000
Utilities per hour= 8000/4000= 2
Utilities per 7000 hours= 2*7000= 14000
Supervisery salaries are fixed, hence at 7000 hours = 4000
Total OH at 7000 hours= 28750
Utilities+Supervisery salaries+maintenance= 28750
14000+4000+Maintenance= 28750
Maintenance= 10750
Difference in maintenance cost from 7000 hours to 4000 hours level= 10750-7000= 3750
For extra 3000 hours maintenance costs changed by 3750, which means 3750/3000= 1.25 per hour
Fixed portion will be total OH at 4000 hours level- variable portion= 7000-4000*1.25= 2000
Total maitenance costs at 6500 hours= fixed portion + variable portion= 2000+ 6500*1.25= 10125
Option A is correct
6. Variable cost= Sales-fixed costs- profit= 225000-72000-18000= 135000
Total units sold= sales revenue/ sale price= 225000/15= 15000
Variable cost per unit= Total variable cost/units sold= 135000/15000= 9
Contribution per unit= Sale price-variable cost per unit= 15-9= 6
BEP unit sales= fixed cost/Contribution per unit= 72000/6= 12000
Option D is correct
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