X Company uses account analysis to estimate annual overhead costs. To determine

Question

X Company uses account analysis to estimate annual overhead costs. To determine the parameters of the annual overhead cost function, it used data from 2013, when 800 units were produced. Total costs in 2013 and the percentage of total costs that were variable were as follows:

If production in 2014 is expected to be 900 units, what are estimated total variable overhead costs in 2014 (round intermediate unit costs to the nearest cent)?

Total   Variable Supplies $27,700 100%    Utilities 21,100 60%    Maintenance 21,400 35%    Insurance 11,500 0%   

Explanation / Answer

Estimated total variable overhead costs in 2014 = $31162.5 + $14242.5 + $8426.25 + $0 = $53831.25

Working Notes :

Supplies : $27700 x 900/800 = $31162.5

Utilities : $21100 x 60% x 900/800 = $14242.5

Maintenance : $21400 x 35% x 900/800 = $8426.25

Insurance = 11,500 x 0% x 900/800 = $0

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