Question

Board​ Games, Inc. makes board games. The following data pertains to the last six​ months:

                        Direct Labor Hours           Manufacturing Overhead

Month 1 ​                   45,000 ​                      $295,000

Month 2                   59,000    $ 317, 000

Month3 ​                   57,000    ​$323,000

Month 4    ​52,000 ​                       $247,250

Month 5    ​34,000                        ​$178,200

Month 6                  27,000                       $ 166,500

Based on this​ data, what is the linear cost​ equation? (Round intermediary calculations to the nearest​ cent.)

A. y​ = $ 0.21 X ​+ $ 150 comma 500 B. y​ = $ 4.70 X ​+ $ 39 comma 700 C. y​ = $ 4.76 X ​+ $ 29 comma 970 D. Cannot be determined from information given.  

Answer 1

Option - B .....y​ = $ 4.70 X ​+ $ 39,700

Using High low Method

Highest activity = Labor hours of 59000, corresponding OH = 317000

Lowest activity = Labor hours of 27000 Corresponding OH = 166,500

Variable cost per hour = Difference in cost / Difference in activity level

= ( 317,000 - 166,500 ) / ( 59000 - 27000 ) = 150500 / 32000 = 4.70 per hour

Fixed cost = Total cost - Variable cost = 317,000 - 59000 hours * 4.70 = 317000 - 277300 = 39700

Hence the linear cost equation = 4.70 * X + 39700