Question

Board? Games, Inc. makes board games. The following data pertains to the last six? months:

            Direct Labor Hours                     Manufacturing Overhead

Month 1: ?45,000                                      $295,000

Month 2: ?60,000 ?$320,000

Month 3: ?57,000 ?                                    $323,000

Month 4: ?52,000    ?$247,250

Month 5: ?34,000                                   ?$178,200

Month 6: ?25,000    ?$162,500

Based on this? data, what would the estimated manufacturing overhead be at a level of? 48,000 direct labor? hours?

Answer 1

The estimated manufacturing overhead be at a level of? 48,000 direct labor? hours

$ 266,000

Working:

In given question, different manufacturing overhead is given for different direct labor hours.

So, in such type of questions, first of all calculate fixed costs and variable cost per unit.So, that we can calculate

total cost at any level.

As per high-Low method,

Variable cost per direct labor hour

=

(A-B)/(H-L)

Where,

=

(320000-162500)/(60000-25000)

A

Total cost at hiighest level of activity

$ 3,20,000

=

$             4.50

B

Total cost at lowest level of activity

$ 1,62,500

H

Highest level of activity

60,000

L

Lowest level of activity

25,000

Now we calculate fixed cost as follows;

Either highest level of

Lowest level of

60,000 hours

or

25,000 hours

Total cost

$     3,20,000

$       1,62,500

Less Variable cost

$     2,70,000

$       1,12,500

(60000*4.50)

(25000*4.50)

Fixed Cost

$         50,000

$           50,000

Fixed cost is remain same for all different level.So, fixed cost is

$         50,000

Now, formula of total cost

=

A+B*x

Where,

A

Fixed Cost

B

Variabele cost per unit

x

Total level of activity

So, total manufacturing cost at 48,000 direct labor hours is calculated as follows:

Total Manufacturing cost

=

A+B*x

Where,

=

50000+4.50*48000

A

Fixed Cost

$           50,000

=

$ 2,66,000

B

Variabele cost per hour

$               4.50

x

Total level of activity

48,000

hours