Question

Month Labor Cost Employee Hours January 14,000 720 February 16,280 1,100 March 19,798 1,260 April 19,574...

Month Labor Cost Employee Hours January 14,000 720 February 16,280 1,100 March 19,798 1,260 April 19,574 1,220 May 16,980 960 June 14,900 700 July 18,980 740 August 15,062 620

Using the information from problems 1 and 2, if 650 machine hours were budgeted for September what would the total cost be?

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Answer #1

Variable cost per unit = (Highest activity cost - Lowest activity cost)/(Highest activity - Lowest activity)

= (19,798-15,062)/(1,260-620)

= 4,736/640

= $7.4 per employee hour

Fixed cost = Highest activity cost - Highest activity x Variable cost per employee hour

= 19,798-1,260 x 7.4

= 19,798-9,324

= $10,474

The estimated month overhead costs if 650 machine hours were budgeted for September = Fixed cost + Variable cost per employee hour x Activity hour

= 10,474+7.4 x 650

= 10,474+4,810

= $15,284

the total cost be = $15,284

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