Crosshill Company’s total overhead costs at various levels of activity are presented below: Month Machine-Hours Total Overhead Cost April 70,000 $ 205,000 May 60,000 $ 184,500 June 80,000 $ 225,500 July 90,000 $ 246,000 Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000-machine-hour level of activity in May is as follows: Utilities (variable) $ 52,800 Supervisory salaries (fixed) 21,000 Maintenance (mixed) 110,700 Total overhead cost $ 184,500 The company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $246,000 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $246,000 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Round the "Variable cost per unit" to 2 decimal places.) 2. Using the high–low method, estimate a cost formula for maintenance. (Round the "Variable cost per unit" to 2 decimal places.) 3. Express the company’s total overhead cost in the form Y = a + bX. (Round the "Variable cost per unit" to 2 decimal places.) 4. What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours? (Round the "Variable cost per unit" to 2 decimal places.)
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Crosshill Company’s total
| Month | Machine-Hours | Total Overhead Cost | ||
| April | 70,000 | $ | 205,000 | |
| May | 60,000 | $ | 184,500 | |
| June | 80,000 | $ | 225,500 | |
| July | 90,000 | $ | 246,000 | |
Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000-machine-hour level of activity in May is as follows:
| Utilities (variable) | $ | 52,800 |
| Supervisory salaries (fixed) | 21,000 | |
| Maintenance (mixed) | 110,700 | |
| Total overhead cost | $ | 184,500 |
The company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $246,000 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $246,000 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Round the "Variable cost per unit" to 2 decimal places.)
2. Using the high–low method, estimate a cost formula for maintenance. (Round the "Variable cost per unit" to 2 decimal places.)
3. Express the company’s total overhead cost in the form Y = a + bX. (Round the "Variable cost per unit" to 2 decimal places.)
4. What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours? (Round the "Variable cost per unit" to 2 decimal places.)
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