ACCOUNTING PRINCIPLES II- MANAGERIAL-CH. 5,7-11- FAI7 Name Short Answer 1. Given

Question

ACCOUNTING PRINCIPLES II- MANAGERIAL-CH. 5,7-11- FAI7 Name Short Answer 1. Given the following data, use the high/low method to determine the variable cost per inspection and the fixed costs. Prepare the budget equation. Number of Inspections Overhead Costs $3,420 3,555 3,989 4,044 4,101 4,120 onth arch April May une ul August Meredith takes her daughter with her on all inspections and pays her $40 per i business in the cooler months, Meredith estimates she will average 60 inspections per month for the next six months. Prepare a schedule showing Meredith 's estimated total cost per inspection. nspection. Due to slower

Explanation / Answer

Solution 1:

Computation of variable overhead cost per inspection and fixed cost using high low method:

Highest number of inspection in Aug = 110, with Overhead cost = $4,120

Lowest number of inspection in Mar = 60, with Overhead cost = $3,420

Let X is variable overhead cost per unit and F is the fixed cost per unit.

Therefore:

110X + F = $4,120

60X + F = $3,420

On solving both equation:

X = ($4,120 - $3,420) / (110 – 60) = $14 per inspection

F = $4,120 – (110*14) = $2,580

Budget equation considering y is the total cost at x number of inspection:

y = 14x + $2,580

Meridith pays her daughter $40 per inspection, therefore

Direct labor cost of inspection = $40 per inspection

Total variable cost per inspection = $40 + $14 = $54 per inspection

Estimated total cost of inspection at average 60 inspection = 60*54 + 2,580 = $5,820

Total cost per inspection = $5,820 / 60 = $97 per inspection

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