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High-Low and Cost Formula Harrison Company has accumulated the following total manufacturing overhead costs for two...
High-Low and Cost Formula
Harrison Company has accumulated the following total manufacturing overhead costs for two levels of activity (within the relevant range):
| Low | High | |
|---|---|---|
| Activity (direct labor hours) | 90,000 | 130,000 |
| Total manufacturing overhead | $484,000 | $628,000 |
The total overhead cost includes variable, fixed, and mixed costs. At 130,000 direct labor hours, the total cost breakdown is as follows:
| Variable cost | $286,000 |
| Fixed cost | 85,000 |
| Semi-mixed cost | $257,000 |
a. Using the high-low method of cost analysis, determine the variable portion of the semi-variable cost per direct labor hour. Determine the total fixed cost component of the mixed cost.
Isolate mixed costs:
Do not use negative signs with your answers.
| Low | High | |
|---|---|---|
| Total cost | Answer | Answer |
| Less: Variable cost | Answer | Answer |
| Fixed cost | Answer | Answer |
| Total mixed cost | Answer | Answer |
High-Low Analysis:
Round variable portion per unit to two decimal places, if
applicable.
| Direct Labor Hours | Total Mixed Cost | - | Variable Portion | = | Fixed Portion | ||
|---|---|---|---|---|---|---|---|
| High | Answer | Answer |
- |
Answer |
= |
Answer | |
| Low | Answer | Answer | Answer | Answer | |||
| Difference | Answer | Answer |
Variable portion per unit: $Answer
b. What should the total planned overhead cost be at 115,000 direct labor hours?
| Variable Cost Per Unit | Fixed Costs | |
|---|---|---|
| Variable cost | Answer | |
| Fixed cost | Answer | |
| Mixed: | ||
| Variable portion | Answer | |
| Fixed portion | Answer | |
| Totals: | Answer | Answer |
Total planned overhead for 115,000 direct labor hours $Answer
Solutions
Expert Solution
| Labor Hours | 90000 | 130000 | |||
| Low | High | ||||
| Total cost | 484000 | 628000 | |||
| Less: Variable cost | 198000 | 286000 | |||
| Fixed cost | 85000 | 85000 | |||
| Total mixed cost | 201000 | 257000 | |||
| Direct Labor Hours | Total Mixed Cost | Variable Portion | Fixed Portion | ||
| High | 130000 | 257000 | 182000 | 75000 | |
| Low | 90000 | 201000 | 126000 | 75000 | |
| Difference | 40000 | 56000 | |||
| Varibale portion per unit = 56000/40000 = $1.4 per hour | |||||
| b. | |||||
| Variable Cost Per Unit | Fixed Costs | ||||
| Variable cost | 2.2 | ||||
| Fixed cost | 85000 | ||||
| Mixed: | |||||
| Variable portion | 1.4 | ||||
| Fixed portion | 75000 | ||||
| Totals: | 3.6 | 160,000 | |||
| Total planned overhead = 3.6*115000 + 160,000 = $574,000 | |||||
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