Question

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.

Month	Direct-Labor Hours	Manufacturing Overhead
January	31,000	$	695,000
February	33,000		734,000
March	43,000		893,000
April	34,000		752,750
May	38,000		796,500
June	36,000		793,500

March’s costs consisted of machine supplies ($219,300), depreciation ($29,500), and plant maintenance ($644,200). 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 $74,500. The cost is $149,000 from 15,000–29,999 hours and $223,500 when activity reaches 30,000 hours or more.

Required:

1. Determine the machine supplies cost and depreciation for January.

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. 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 29,300 direct-labor hours are worked.

Answer 1

1.

Machine supplies are variable in nature.

Total machine supplies for March for 43,000 direct labor hours = $219,300

Hence, machine supplies per direct labor hour = 219,300/43,000

= $5.1

Hence, machine supplies in January = 5.1 x 31,000

= $158,100

Since depreciation is a fixed cost, it will be $29,500 for January same as in March.

2.

Variable manufacturing overhead per direct labor hour = Difference in high low cost/Difference in direct labor hours at the high and low cost

= (893,000 - 695,000)/(43,000 - 31,000)

= 198,000/12,000

= $16.5

Machine supplies per direct labor hour = $5.1

Hence, plant maintenance per direct labor hour = 16.5 - 5.1

= $11.4

Total variable plant maintenance cost in March = 11.4 x 43,000

= $490,200

Total plant maintenance cost in March = $644,200

Hence, fixed plant maintenance cost in March = Total plant maintenance cost in March - Total variable plant maintenance cost in March

= 644,200 - 490,200

= $154,000

Monthly fixed cost = Fixed plant maintenance cost + Depreciation

= 154,000 + 29,500

= $183,500

3.

Total manufacturing costs in November = Variable manufacturing cost + Fixed manufacturing cost + Supervisory labor cost

= 29,300 x 16.5+ 183,500 + 149,000

= $815,950