value 4.00 points Dwomoa Group of Companies total overhead cost at various levels of activity are presented below. Machine-Hours Total Overhead Cost 0 April May June 49,000 39,000 59,000 69,000 $170,720 $220,320 $245,120 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) 54,600 57,000 59,120 Total overhead cost $170,720 Dwomoa Group of Companies, management wants to break down the maintenance cost into its variable and fixed cost elements. Required:
Expert Answer
Solution:
1.
Total overhead costs 245,120
Less: Utilities (96,600)*
Less: Supervisory salaries (57,000)
Total maintenance cost 91,520
*$54,600 ÷ 39,000 MHs = $1.40 per MH
2. | Machine-hour | Maintenance cost |
High activity level (July) |69,000 | |91,520|
Low activity level (May) |39,000 | |59,120|
Change | 30,000 | |32,400 |
Variable cost = 32,400/30,000 = $1.08
Fixed cost = 91,520 – 1.08 x 69,000 = 17,000
Total cost = 1.08x + 17,000
3.
| Machine-Hour | Total overhead cost |
High activity level (July) |69,000 | |245,120|
Low activity level (May) |39,000 | |170,720|
Change | 30,000 | |74,400 |
Variable cost = 74,400/30,000 = $2.48
Fixed cost = 245,120 – (2.48 x 69,000) = 74,000
Total cost = 2.48x + 74,000
4. $74,000 + $2.48(44,000) = $183,120 = Total overhead cost incurred atoperating activity level of 44,000 machine hours