Machining Department? 2. Patrick Ross, the president of Corise\'s Wild Game Comp

Question

Machining Department? 2. Patrick Ross, the president of Corise's Wild Game Company, has asked for information about the cost behavior of manufacturing overhead costs. Specifically, he wants to know how much overhead cost is fixed and how much is variable. The following data are the only records available: Month February March April May June Machine-hours Overhead Costs 1,870 3,080 1,100 2,750 3,850 $22,500 24,475 24,321 23,650 31,196 Required: Using the high low method, determine the overhead cost equation. Use machine-hours as your cost driver.

Explanation / Answer

Cost Machine hours Highest activity level 31196 3850 Lowest activity level 24321 1100 Change in activity level 6875 2750 Variable cost= 6875/2750= 2.5 Fixed cost = 31196-(3850*2.5)= 21571 Cost equation = 21571+2.5X

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