Question

Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor-hours, machine-hours, or both. The following data were collected from last year's operations.

Month	Labor-Hours			Machine-Hours			Overhead Costs
1		720			1,364		$	102,770
2		720			1,405			103,717
3		680			1,516			109,813
4		735			1,463			108,269
5		780			1,584			116,159
6		755			1,577			114,479
7		740			1,387			106,942
8		720			1,301			102,073
9		715			1,462			106,467
10		795			1,554			113,043
11		675			1,286			101,021
12		720			1,610			114,305

Required:

a. Use the high-low method to estimate the fixed and variable portions of overhead costs based on machine-hours.

b. Managers expect the plant to operate at a monthly average of 1,700 machine-hours next year. What are the estimated monthly overhead costs, assuming no inflation?

Answer 1