The following is the total overhead cost at various levels of activity for McRoy Company: Total Overhead Cost $222,000 $246,000 $198,000 $174,000 February March April May Direct Labour Hours 80,000 90,000 70,000 60,000 The total overhead cost above consists of utilities, rent and maintenance. The breakdown of these costs at the 60,000 direct labour hour level of activity is: Utilities (variable) Rent (fixed) Maintenance (Mixed) Total overhead cost $48,000 $21,000 $105,000 $174,000 McRoy Company wants to separate the maintenance cost into its variable and fixed components. Required: (a) Estimate how much of the $246,000 of overhead cost in March was maintenance cost. (b) Using the high low method, construct a cost formula for the maintenance cost. (c) Assume that 209,000 direct labour hours are budgeted for the third quarter of the year, what would be the total overhead cost for the quarter?

The following is the total overhead cost at various levels of activity for McRoy Company: Total Overhead Cost $222,000 $246,000 $198,000 $174,000 February March April May Direct Labour Hours 80,000 90,000 70,000 60,000 The total overhead cost above consists of utilities, rent and maintenance. The breakdown of these costs at the 60,000 direct labour hour level of activity is: Utilities (variable) Rent (fixed) Maintenance (Mixed) Total overhead cost $48,000 $21,000 $105,000 $174,000 McRoy Company wants to separate the maintenance cost into its variable and fixed components. Required: (a) Estimate how much of the $246,000 of overhead cost in March was maintenance cost. (b) Using the high low method, construct a cost formula for the maintenance cost. (c) Assume that 209,000 direct labour hours are budgeted for the third quarter of the year, what would be the total overhead cost for the quarter?

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Description: The following is the total overhead cost at various levels of activity for McRoy Company:Total Overhead Cost$222,000$246,000$198,000$174,000FebruaryMarchAprilMayDirect Labour Hours80,00090,00070,00060,000The total overhead cost above consists of uti

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Chapter1: Financial Statements And Business Decisions

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Concept explainers

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.

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Question

The following is the total overhead cost at various levels of activity for McRoy Company:
Total Overhead Cost
$222,000
$246,000
$198,000
$174,000
February
March
April
May
Direct Labour Hours
80,000
90,000
70,000
60,000
The total overhead cost above consists of utilities, rent and maintenance. The breakdown of
these costs at the 60,000 direct labour hour level of activity is:
Utilities (variable)
Rent (fixed)
Maintenance (Mixed)
Total overhead cost
$48,000
$21,000
$105,000
$174,000
McRoy Company wants to separate the maintenance cost into its variable and fixed
components.
Required:
(a) Estimate how much of the $246,000 of overhead cost in March was maintenance cost.
(b) Using the high low method, construct a cost formula for the maintenance cost.
(c) Assume that 209,000 direct labour hours are budgeted for the third quarter of the year,
what would be the total overhead cost for the quarter?

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Step 2: Working for utilities cost per direct labor hour and maintenance costs

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