Crosshill Company's total overhead costs at various levels of activity are presented below: Total Overhead Month Machine-Hours April 70,000 May 60,000 June 80,000 July 90,000 Cost $198,000 $174,000 $222,000 $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) Supervisory salaries (fixed). Maintenance (mixed). Total overhead cost $ 48,000 21,000 105,000 $174,000 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.) 2. 3. 4. Using the high-low method, estimate a cost formula for maintenance. Express the company's total overhead cost in the form Y= a + bx. What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours?
Crosshill Company's total overhead costs at various levels of activity are presented below: Total Overhead Month Machine-Hours April 70,000 May 60,000 June 80,000 July 90,000 Cost $198,000 $174,000 $222,000 $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) Supervisory salaries (fixed). Maintenance (mixed). Total overhead cost $ 48,000 21,000 105,000 $174,000 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.) 2. 3. 4. Using the high-low method, estimate a cost formula for maintenance. Express the company's total overhead cost in the form Y= a + bx. What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Crosshill Company's total overhead costs at various levels of activity are presented below:
Total Overhead
Month
Machine-Hours
April
70,000
May
60,000
June
80,000
July
90,000
Cost
$198,000
$174,000
$222,000
$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)
Supervisory salaries (fixed).
Maintenance (mixed).
Total overhead cost
$ 48,000
21,000
105,000
$174,000
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.)
2.
3.
4.
Using the high-low method, estimate a cost formula for maintenance.
Express the company's total overhead cost in the form Y= a + bx.
What total overhead cost would you expect to be incurred at an activity level of 75,000
machine-hours?
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