In: Accounting
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
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 |