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High-Low Method Predicting Cost Golden Company’s total overhead cost at various levels of activity are presented below Month Machine-Hours Total Overhead Cost March

High-Low Method; Predicting Cost

Golden Company’s total overhead cost at various levels of activity are presented below:

 

 

Month

Machine-Hours

Total Overhead Cost

March . . . . . . . . . . . . . . . . . . . .  .

50,000

$194,000

April . . . . . . . . . . . . . . . . . . . .

40,000

$170,200

May . . . . . . . . . . . . . . . . . . . . .

60,000

$217,800

June . . . . . . . . . . . . . . . . . . . . . . . . .

70,000

$241,600

 

 

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 40,000 machine-hour level of activity is as follows:

 

 

 

 

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

Required:

1.       Estimate how much of the $241,600 of overhead cost in June was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $241,600 consisted of utili- ties and supervisory salaries. Think about the behavior of variable and fixed costs within the relevant range.)

2.       Using the high-low method, estimate a cost formula for maintenance.

3.       Express the company’s total overhead cost in the form bX.

4.       What total overhead cost would you expect to be incurred at an activity level of 45,000 machine-hours?

Jun 28 2020 View more View Less

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