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Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor-hours, machine-hours, or both. The following data were collected from last year's operations. MonthLabor-HoursMachine-HoursOverhead Costs 1 3,625 6,775 $513,435 2 3,575 7,035 518,960 3 3,400 7,600 549,575 4 3,700 7,265 541,400 5 3,900 7,955 581,145 6 3,775 7,895 572,320 7 3,700 6,950 535,110 8 3,625 6,530 510,470 9 3,550 7,270 532,195 10 3,975 7,725 565,335 11 3,375 6,490 503,775 12 3,550 8,020 564,210 Required: a. Use the high-low method to estimate the fixed and variable portions of overhead costs based on machine-hours. b. Managers expect the plant to operate at a monthly average of 7,500 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation

Respuesta :

anthougo

a. Using the 8th and 12th months as the low and high figures, the fixed and variable portions of overhead costs based on machine hours are calculated as follows:

Month     Machine hours      Cost      

8                6,530                 $510,470

12              8,020                 $564,210

Difference 1,490                    $53,740

Variable cost = $36.07 ($53,740/1,490) per machine hour

Using the 12th month, the fixed cost = $274,928.60 ($564,210 - (8,020 x $36.07).

b. Assuming no inflation next year, the monthly estimated overhead costs are $545,454 (7,500 x $36.07 + $274,928.60).

What is the high-low method?

The High and Low Method is a costing method that splits the Fixed and Variable costs by studying cost variability.

Though, a subjective approach, the high and low method is employed for their simplicity. The other more complex method is regression method.

Data and Calculations:

Month      Labor-Hours     Machine-Hours   Overhead Costs

1                   3,625                  6,775                  $513,435

2                  3,575                  7,035                    518,960

3                  3,400                  7,600                   549,575

4                  3,700                  7,265                    541,400

5                  3,900                  7,955                    581,145

6                  3,775                   7,895                  572,320

7                  3,700                  6,950                    535,110

8                 3,625                  6,530                    510,470

9                 3,550                  7,270                    532,195

10                3,975                  7,725                   565,335

11                3,375                  6,490                    503,775

12               3,550                  8,020                   564,210

Learn more about the High-Low method of costing at https://brainly.com/question/14107176

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