Question

Crosshill Company’s total overhead costs at various levels of activity are presented below:

Month	Machine-Hours	Total Overhead Cost
April	49,000	$209,260
May	39,000	$182,860
June	59,000	$235,660
July	69,000	$262,060

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000-machine-hour level of activity in May is as follows:

Utilities (variable)	$	58,500
Supervisory salaries (fixed)		65,000
Maintenance (mixed)		59,360
Total overhead cost	$	182,860

The company wants to break down the maintenance cost into its variable and fixed cost elements.

Required:

1. Estimate how much of the $262,060 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $262,060 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Do not round intermediate calculations.)

2. Using the high–low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

3. Express the company’s total overhead cost in the form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

4. What total overhead cost would you expect to be incurred at an activity level of 44,000 machine-hours? (Do not round intermediate calculations.)

Answer 1

1)	Maintenance cost a high level activity	93,560
		Low	High
	Machine hours	39000	69000
	Utilities(Variable)	58,500	103,500
	Sup salary (Fixed)	65,000	65,000
	Maintenance (Mixed)	59,360	93,560	(Balancing Figure)
	Total	182,860	262,060
2)		Direct labour hours	Maintenance Cost
	High level of activity	69,000	93,560
	low level of activity	39,000	59,360
	Change	30,000	34,200
	Variable cost Element	1.14	per machine hour
	Fixed cost element	14,900
3)		Variabe cost per machine hour	Fixed cost
	Utiities Cost	1.50
	Supervisor salary		65,000
	Maintenance cost	1.14	14,900
	Total Overhead cost	2.64	79,900
	Y = 79900 + 2.64X
4)	Total factory overhead cost	196,060
	Utilities(Variable)	66,000
	Sup salary (Fixed)	65,000
	Maintenance (Mixed)	50,160
	Fixed cost element(Mixed)	14,900
	Total	196,060