5. A company\'s total overhead cost at various levels of activity is presented b

Question

5. A company's total overhead cost at various levels of activity is presented below at Month Total Overhead Cos Machine-Hours March... 5,000 4,000 6,000 7,000 21,750 $19,000 $25,000 $28,750 April May June Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance at the 4,000 machine-hour level of activity is as follows Utilities (variable) S 8 ,000 Supervisory salaries (fixed).4.000 Maintenance (mixed)7,000 Total overhead cost$19,000 Suppose th e 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 machine hours? activity level of 6,500 A. $10,125 B. $14,125 C. $23,125 D. $27,12:5 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. 18,000

Explanation / Answer

5) Maintenance cost at 7000 utilities (8000/4000*7000) 14,000 Supervisory salaries 4,000 Maintenance (balancing) 10,750 total overhead cost 28,750 high low method machine Cost hours high 7,000 10,750 low 4,000 7,000 Difference 3,000 3750 Variable cost per unit = 3750/3000 1.25 fixed cost = 10,750 -7000*1.25 2000 At 6,500 machine hours , maintenance cost will be 6500*1.25 +2000 10125 option A is the answer 6) units sold last year = 225,000/15 15000 total contribution = fixed cost+net operating income 72000+18000 90000 contribution margin per unit = 90000/15000 6 unit sales = fixed cost/contribution per unit 72000/6 12000 option D Is the correct answer

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