Question

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

  

Answer 1

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