ABC Company manufactures electric saws. Based on past experience, ABC has found
ID: 2592567 • Letter: A
Question
ABC Company manufactures electric saws. Based on past experience, ABC has found that its total overhead cost can be represented by the following formula: Total overhead cost = $50,000 + $2.00x, where x = number of machine hours. Last year ABC incurred 100,000 machine hours.
Required and show work:
What was the total overhead cost incurred by ABC last year?
What was the total variable overhead cost incurred by ABC last year?
What was the total overhead cost per machine hour last year?
What was the fixed overhead cost per machine hour last year?
If ABC incurs 120,000 machine hours next year, what will be the total overhead cost per
machine hour?
Explanation / Answer
1) Calculation of Total Overhead cost :
Total overhead cost = $50,000 + $2*100,000
= $250,000
2) Total variable overhead cost :
Total variable overhead cost = $2*100,000
= $200,000
3) Total overhead cost per machine hour :
Total overhead cost per machine hour = Total overhead cost / Number of machine hours
= $250,000 / 100,000
= $2.5 /hour
4) Calculation of Fixed overhead cost per machine hour :
Fixed overhead cost per machine hour = Fixed overheads / Machine hours
= $50,000 / 100,000
= $0.5 / hour
5) Calculation of Total overhead cost per machine hour in case of 120,000 machine hours :
Total overhead cost per machine hour = ($50,000 + $2*120,000) / 120,000
= $290,000 / 120,000
= $2.42
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