The management accountant of Fed & Co. is developing cost formulas for major ove
ID: 2517134 • Letter: T
Question
The management accountant of Fed & Co. is developing cost formulas for major overhead activities. The following information has been obtained regarding the behavior of the factory power costs over a number of months:
Month
Machine Hours
Power Cost ($)
July
August
September
October
November
December
2,500
2,800
2,200
3,000
1,500
2,000
10,125
10,840
9,800
11,000
8,750
9,300
Required:
(a) Using the high-low method, calculate:
(i) The variable cost per machine hour .
(ii) Total fixed cost per month .
(b) What would be the expected total cost for a month when machines are operating for 2,700 hours?
Month
Machine Hours
Power Cost ($)
July
August
September
October
November
December
2,500
2,800
2,200
3,000
1,500
2,000
10,125
10,840
9,800
11,000
8,750
9,300
Explanation / Answer
a) i) Variable cost per machine hour = Change in cost/change in hour
= (11000-8750)/(3000-1500)
Variable cost per machine hour = 1.5 per machine hour
ii) Fixed cost = 11000-(3000*1.5) = 6500
b) Total cost on 2700 hours = (2700*1.5+6500) = 10550
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.