Golden Company’s total overhead cost at various levels of activity are presented below:

Month	Machine-Hours	Total Overhead Cost
March	52,000	$207,500
April	42,000	$182,000
May	62,000	$233,000
June	72,000	$258,500

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 42,000 machine-hour level of activity is as follows:

Utilities (variable)	$	58,800
Supervisory salaries (fixed)		60,000
Maintenance (mixed)		63,200
Total overhead cost	$	182,000

The company wants to break down the maintenance cost into its variable and fixed cost elements.

Required:

1.

Estimate how much of the $258,500 of overhead cost in June was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $258,500 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs within the relevant range.)(Do not round intermediate calculations. Omit the "$" sign in your response.)

Maintenance cost in June

$

2.	Using the high-low method, estimate a cost formula for maintenance. (Round the "Variable cost per unit" to 2 decimal places and "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)

Y

=

$

+

$

X

3.	Express the company’s total overhead cost in the form Y = a + bX. (Round the "Variable cost per unit" to 2 decimal places and "Fixed cost" to the nearest dollar amount. Omit the "$" sign in your response.)

Y

=

$

+

$

X

4.	What total overhead cost would you expect to be incurred at an activity level of 47,000 machine-hours? (Do not round intermediate calculations. Omit the "$" sign in your response.)

    

Total overhead cost

$

 
Explanation:

1.

Maintenance cost at the 72,000 machine-hour level of activity can be isolated as follows:

	Level of Activity
	42,000 MH		72,000 MH
Total factory overhead cost	$	182,000	$	258,500
Deduct:
Utilities cost @ $1.40 per MH*		58,800		100,800
Supervisory salaries		60,000		60,000
Maintenance cost	$	63,200	$	97,700

*$58,800 ÷ 42,000 MHs = $1.40 per MH

          
2.

High-low analysis of maintenance cost:

	Machine Hours	Maintenance Cost
High activity level	72,000	$ 97,700
Low activity level	42,000	63,200
Change	30,000	$ 34,500

Variable cost per unit of activity:

Change in cost	=	$34,500	=	$1.15 per MH
Change in activity		30,000 MHs

Total fixed cost:

Total maintenance cost at the low activity level	$	63,200
Less the variable cost element       (42,000 MHs × $1.15 per MH)		48,300
Fixed cost element	$	14,900

Therefore, the cost formula is $14,900 per month plus $1.15 per machine-hour or Y = $14,900 + $1.15X

        
3.

	Variable Rate per Machine-Hour	Fixed Cost
Maintenance cost	$ 1.15	$ 14,900
Utilities cost	1.40
Supervisory salaries cost		60,000
Totals	$ 2.55	$ 74,900

Thus, the cost formula is: Y = $74,900 + $2.55X.

     
4.  

Total overhead cost at an activity level of 47,000 machine-hours:

         

Fixed cost	$	74,900
Variable costs: $2.55 per MH × 47,000 MHs		119,850
Total overhead costs	$	194,750