Baton-Rouge Co. is an French manufacturing company whose total factory overhead

ID: 2424883 • Letter: B

Question

Baton-Rouge Co. is an French manufacturing company whose total factory overhead costs fluctuate somewhat from month to month according to the number of machine-hours worked in its production facility. These costs (in Euros) for the three months in summer are given below. Unfortunately, the costs are incomplete. Machine-hours Total factory overhead costs The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 46.500 machine-hours level of activity as follows: Indirect materials (variable) Rent(fixed) maintenance (mixed) Total factory overhead costs What total maintenance costs would you expect the company to incur at an operating level for August? Use the High-Low Method.

Explanation / Answer

Fixed cost will remain same regardless the level of activity

Variable cost per unit= $51,150/46,500= $1.1

Hence variable cost for:

July =$1.1 x 62,000=$68,200

August=$1.1 x 63,500=$69,850

Maintenance (Mixed) cost for June $40,550

July $ =Total cost-[Indirect Material cost+ Rent]

=$236,400-[69,850+$123,000]

= 45,200

As it is mixed cost we need find out both variable and fixed cost separately

Let us find out variable cost using low and high method

Variable cost per unit= Difference between mix cost/ difference between hrs

= 45,200 - 40,550 / 62,000 - 46,500

= 4,650 / 15,500

=$ 0.30

Fixed cost= Total Cost- Total variable cost

= 40,550 -0.30 x 46,500

=40,550-13,950

= $26,600

For july= $26,600+ 0.30 x 62,000

=$26,600+18,600

=$45,200

For August =$26,600 + 0.30 x 63,500

=$26,600+ 19,050

=$45,650

Particulars

June

July

August

Units

46,500

62,000

63,500

Indirect Material

51,150

68,200

69,850

Rent

123,000

Maintenance

40,550

45,200

45,650

214,700

236,400

238,500

Opion D correct