Echeverria SA is an Argentinian manufacturing company whose total factory overhead costs fluctuate somewhat from year to year according to the number of machine-hours worked in its production facility. These costs (in Argentinian pesos) at high and low levels of activity over recent years are given below: Level of Activity Low High Machine hours 60,000 80,000 Total MOH costs 274,000 pesos
Echeverria SA is an Argentinian manufacturing company whose total factory
Level of Activity
Low High
Machine hours 60,000 80,000
Total MOH costs 274,000 pesos 312,000 pesos
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 60,000 machine-hours level of activity as follows:
Indirect Materials (variables) 90,000
Rent (fixed) 130,000
Maintenance (mixed) 54,000
Total Overhead Cost 274,000
For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the
2. Using the high-low method, estimate a cost formula for maintenance.
3. What total overhead costs would you expect the company to incur at an operating level of 80,000 machine-hours?
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