Golden Companys total overhead cost at various levels of activity are
presented below
P2-21 Golden Company’s
total overhead cost at various levels of activity are presented below: Month Machine-hours
Total overhead cost
March 50,000 $194,000
April 40,000 $170,200
May 60,000 $217,800
June 70,000 $241,600
Assume that the overhead cost above consists of utilities, supervisory
salaries, and maintenance. The breakdown of these costs at the 40,000
machine-hour level of activity is as follows:
Utilities(variable) $52,000
Supervisory salaries(fixed) 60,000
Maintenance(mixed) 58,200
Total overhead cost $170,200
The company wants to break down the maintenance cost into its variable
and fixed cost elements.
Required:
1. Estimate how much
of the $241,600 of overhead cost in June was maintenance cost. (Hint: To do
this, it may be helpful to first determine how much of the $241,600 consisted
of utilities and supervisory salaries. Think about the behavior of variable and
fixed costs within the relevant range.)
2. Using the high-low method, estimate a cost formula for maintenance.
3. Express the company’s total overhead cost in the form Y = a + bX.
4. What total overhead cost would you expect to be incurred at an activity level of 45,000 machine-hours?
3. Express the company’s total overhead cost in the form Y = a + bX.
4. What total overhead cost would you expect to be incurred at an activity level of 45,000 machine-hours?
TUTORIAL PREVIEW
1
. Maintenance cost at the 70,000 machine-hour level of activity can be isolated
as follows:
|
Level of Activity
|
||
|
40,000 MH
|
70,000 MH
|
|
|
Total factory overhead cost
|
$170,200
|
$241,600
|
|
Deduct:
|
||
|
Utilities cost @ $1.30 per MH*
|
52,000
|
91,000
|
