MIXED COSTS 3apr 2010

# MIXED COSTS 3apr 2010 - MIXED COSTS ABC Company's total...

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MIXED COSTS ABC Company's total overhead costs at various levels of activity are presented below: Machine Hours Total Overhead Costs March. ........ 60,000 \$216,800 April. .......... 50,000 \$194,000 May. ........... ................ 70,000 \$239,600 June. ........... 80,000 \$262,400 Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the 50,000 machine-hour level of activity these costs are: Utilities (V). ................................... \$ 54,000 Supervisory salaries (F). ................ 62,000 Maintenance (M). .......................... 78,000 Total overhead cost. ....................... \$194,000 V = Variable; F = Fixed; M = Mixed The company wants to break down the maintenance cost into its basic variable and fixed cost elements. Required: a.Estimate the maintenance cost for June. b.Use the high-low method to estimate the cost formula for maintenance cost. c.Estimate the total overhead cost at an activity level of 55,000 machine hours.

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ANSWER: a . Total overhead cost at 80,000 machine hours. ...................... \$262,400 Less: Utilities (\$54,000/50,000) × 80,000. .................................. 86,400 Supervisory salaries (fixed). ............................................... 62,000 Portion of overhead for June that represents maintenance. ... \$114,000 b. High-low analysis of maintenance cost: Maintenance Cost Machine-Hours High point. ................... \$114,000 80,000 Low point. .................... 78,000 50,000 Change observed. ......... \$ 36,000 30,000 Variable cost: Change in cost/Change in activity = \$36,000/30,000 MHs = \$1.20 per MHs Total fixed cost: Total maintenance cost at the low point. ................................. \$78,000 Less variable cost element (50,000 MHs × \$1.20 per MH). ... 60,000 Fixed cost element. .................................................................. \$18,000 The cost formula is: Y = \$18,000 + \$1.20X c. Total overhead at 55,000 machine hours: Utilities (\$54,000/50,000) × 55,000. ............... \$ 59,400 Supervisory salaries. ........................................ 62,000 Maintenance cost: Variable (55,000 MHs × \$1.20 per MH). ..... \$66,00
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MIXED COSTS 3apr 2010 - MIXED COSTS ABC Company's total...

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