the following data was obtained from the books of the Caldwell Home Painting Com
ID: 2652035 • Letter: T
Question
the following data was obtained from the books of the Caldwell Home Painting Company:
Month --------------------Overhead Costs --------------------------Direct Labor Hours
January ---------------------$2,400 -----------------------------------------------600
February ---------------------3,750 ------------------------------------------------800
March -------------------------1,800------------------------------------------------- 500
April---------------------------- 3,900----------------------------------------------- 900
May ----------------------------1,100------------------------------------------------ 200
A. Compute the fixed and variable components of the monthly overhead costs using the high-low
method.
B. Using the equation developed in (a) above. project the overhead costs for the month of august if the direct costs for the month of august if direct labor hours are projected to be 1100 hours for that month.
Explanation / Answer
We have, at highest activity: x2 = 900; y2 = $3,900 at lowest activity: x1 = 200; y1 = $1,100 Variable Cost per Unit = ($3,900 $1,100) ÷ (900 200) = $4 per unit Total Fixed Cost = $3900 ($4 × 900) = $300 Where, y2 is the total cost at highest level of activity; y1 is the total cost at lowest level of activity; x2 are the number of units/labor hours etc. at highest level of activity; and x1 are the number of units/labor hours etc. at lowest level of activity Month DL Hrs VC FC Total Jan 600.00 2,400.00 300.00 2,700.00 Feb 800.00 3,200.00 300.00 3,500.00 March 500.00 2,000.00 300.00 2,300.00 April 900.00 3,600.00 300.00 3,900.00 May 200.00 800.00 300.00 1,100.00 August 1,100.00 4,400.00 300.00 4,700.00
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