Prince Companys total overhead costs at various levels of ac

Prince Company\'s total overhead costs at various levels of activity are presented below: Machine Hours September 108,600 $531,348 Total Overhead Cost Month October 82,000 $446,760 November 144,100 $644,238 December 149,800 $662,364 Assume that the overhead cost above consists of utilities, supervisory salaries, depreciation, and maintenance. The breakdown of these costs at the 82,000-machine-hour level of activity in October is as follows $140,220 Utilities (variable) Supervisory salaries and depreciation (fixed) Maintenance (mixed) 154,000 152,540 Total overhead cost $446,760 The company wants to break down the maintenance cost into its variable and fixed cost elements Required 1. Estimate how much of the $662,364 of overhead cost in December was maintenance cost. (Hint: To do this, first determine how much of the $662,364 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Do not round intermediate calculations.) Level of Activity 82,000 MH 149,800 MH Maintenance cost 2. Using the high-low method, estimate a cost formula for maintenance. (Round variable cost to 2 decimal places and fixed cost to the nearest dollar amount.)

Solution

1 Maintenance cost at 82000 MH = $152540 Maintenance cost at 149800 MH = 662364-(140220/82000*149800)-154000= 252206 2 Variable maintenance cost per MH = (252206-152540)/(149800-82000)= 1.47 Fixed maintenance cost = 252206-(149800*1.47)= 32000 Y = 32000+1.47X 3 Total variable cost per MH = (140220/82000)+1.47= 3.18 Total fixed cost = 154000+32000= 186000 Y = 186000+3.18X 4 Total overhead costs = 186000+(92000*3.18)= 478560