Chapter 6, Problem 36P

The following selected data were taken from the accounting records of Metcalf Manufacturing. The company uses direct-labor hours as its cost driver for overhead costs.

March’s costs consisted of machine supplies ($102,000), depreciation ($15,000), and plant maintenance ($469,000). These costs exhibit the following respective behavior: variable, fixed, and semivariable.

The manufacturing overhead figures presented in the preceding table do not include Metcalf’s supervisory labor cost, which is step-fixed in nature. For volume levels of less than 15,000 hours, supervisory labor amounts to $45,000. The cost is $90,000 from 15,000–29,999 hours and $135,000 when activity reaches 30,000 hours or more.

Required:

1. 1. Determine the machine supplies cost and depreciation for January.
2. 2. Using the high-low method, analyze Metcalf’s plant maintenance cost and calculate the monthly fixed portion and the variable cost per direct-labor hour.
3. 3. Assume that present cost behavior patterns continue into the latter half of the year. Estimate the total amount of manufacturing overhead the company can expect in November if 29,500 direct-labor hours are worked.
4. 4. Briefly explain the difference between a fixed cost and a step-fixed cost.
5. 5. Assume that a company has a step-fixed cost. Generally speaking, where on a step should the firm attempt to operate if it desires to achieve a maximum return on its investment?