7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month. The manager of the company believes that the cost driver is the number of machine-hours used in its production facility. These costs for the last four months in 2020 are given below. Machine-hours Total factory overhead 6,500 10,000 8,500 September 2$ 104,400 October $ 130,000 November 24 118,500 December 5,000 2$ $ 100,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 2$ 10,000 ? 50,000 2$ 100,000 Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.) A. $ 58,800 $ В. 51,600 С. 73,200 D. 2$ 37,920 E. None of the above
7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month. The manager of the company believes that the cost driver is the number of machine-hours used in its production facility. These costs for the last four months in 2020 are given below. Machine-hours Total factory overhead 6,500 10,000 8,500 September 2$ 104,400 October $ 130,000 November 24 118,500 December 5,000 2$ $ 100,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 2$ 10,000 ? 50,000 2$ 100,000 Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.) A. $ 58,800 $ В. 51,600 С. 73,200 D. 2$ 37,920 E. None of the above
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
from where the $ 3 amount that I highlighted is coming from, please , can you explain me.
Thank you
Transcribed Image Text:Step 1
Fixed cost os fixed at every level of output. Whereas, variable cost varies with the change in output.
Step 2
Calculation of expected maintenance cost:
Highest cost-Lowest cost
Variable cost per unit =
Highest activity level-Lowest activity level
$130,000–S100,000
10,000-5,000
= $6
Per unit variable cost for indirect material
Variable cost of indirect material
Machine hour
$10,000
5,000
= $2
Per unit variable cost for maintenance = Variable cost per unit = Per
units variable cost for indirect material
= $6 – $2
= $4
Fixed cost maintenance = $50, 000 – (5,000 x 4)
= $30, 000
Maintenance cost at 7, 200 machine hours = Variable.cost + Fixed cost
= (7, 200 x $3) + $30, 000
= $51, 600
Therefore, option "b. $51,600" is correct.
Transcribed Image Text:7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month
The manager of the company believes that the cost driver is the number of machine-hours used in its production facility.
These costs for the last four months in 2020 are given below.
Total factory overhead
2$
Machine-hours
6,500
10,000
8,500
104,400
$ 130,000
$ 118,500
$ 100,000
September
October
November
December
5,000
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these
costs at the 5,000 machine-hours level of activity as follows:
Indirect materials (variable)
Rent (fixed)
Maintenance (mixed)
Total factory overhead costs
2$
10,000
50,000
24
100,000
Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you
expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.)
A.
24
58,800
В.
24
51,600
С.
2$
73,200
D.
2$
37,920
None of the above
E.
Expert Solution
High-Low Method:
Under High-Low Method the per-unit variable cost is computed as follows: -
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