Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relationship 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. Month Labor Hours Machine Hours Overhead Costs 1 715 1,352 $102,761 2 720 1,405 $103,815 3 680 1,515 $109,963 4 740 1,447 $108,207 5 780 1,598 $116,274 6 755 1,583 $114,475 7 745 1,399 $107,043 8 720 1,318 $102,058 6 710 1,446 $106,336 10 800 1,542 $113,088 11 685 1,298 $99,088 12 700 1,612 $111,177 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 1,500 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation?

Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
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Adriana Corporation manufactures football equipment. In planning for next year, the managers
want to understand the relationship 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.
Month Labor Hours Machine Hours Overhead Costs
1
715
1,352
$102,761
2
720
1,405
$103,815
3
680
1,515
$109,963
4
740
1,447
$108,207
5
780
1,598
$116,274
6
755
1,583
$114,475
7
745
1,399
$107,043
8
720
1,318
$102,058
6
710
1,446
$106,336
10
800
1,542
$113,088
11
685
1,298
$99,088
12
700
1,612
$111,177
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 1,500 machine-hours next year.
What are the estimated monthly overhead costs, assuming no inflation?
Transcribed Image Text:Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relationship 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. Month Labor Hours Machine Hours Overhead Costs 1 715 1,352 $102,761 2 720 1,405 $103,815 3 680 1,515 $109,963 4 740 1,447 $108,207 5 780 1,598 $116,274 6 755 1,583 $114,475 7 745 1,399 $107,043 8 720 1,318 $102,058 6 710 1,446 $106,336 10 800 1,542 $113,088 11 685 1,298 $99,088 12 700 1,612 $111,177 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 1,500 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation?
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