Question

High-Low and Cost Formula

Adams Company has accumulated the following total manufacturing overhead costs for two levels of activity (within the relevant range):

	Low	High
Activity (direct labor hours)	30,000	50,000
Total manufacturing overhead	$270,000	$362,000

The total overhead cost includes variable, fixed, and mixed costs. At 50,000 direct labor hours, the total cost breakdown is as follows:

Variable cost	$200,000
Fixed cost	90,000
Semi-mixed cost	$72,000

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:

	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 40,000 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 40,000 direct labor hours $Answer

Answer 1