Question

Crosshill Company’s total overhead costs at various levels of activity are presented below:

Month	Machine-Hours	Total Overhead Cost
April	49,000	$173,870
May	39,000	$151,570
June	59,000	$196,170
July	69,000	$218,470

Assume that the overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000-machine-hour level of activity in May is as follows:

Utilities (variable)	$	42,900
Supervisory salaries (fixed)		46,000
Maintenance (mixed)		62,670
Total overhead cost	$	151,570

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

Required:

1. Estimate how much of the $218,470 of overhead cost in July was maintenance cost. (Hint: To do this, first determine how much of the $218,470 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs within the relevant range.) (Do not round intermediate calculations.)

Maintenance cost of July

2. Using the high–low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

	Machine- Hours	Maintenance Cost
High activity level
Low activity level
Change
Variable cost element		per MH
Fixed cost element

Y =

+

X

3. Express the company’s total overhead cost in the form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

	Variable Cost per
	Machine-Hour	Fixed Cost
Utilities cost
Supervisory salaries cost
Maintenance cost
Total overhead cost

4. What total overhead cost would you expect to be incurred at an activity level of 44,000 machine-hours? (Do not round intermediate calculations.)

Total overhead cost

Answer 1

1
Total overhead cost	218470
Less: Utilities	75900	=42900/39000*69000
Less: Supervisory salaries	46000
Maintenance cost in July	96570
2
	Machine hours	Maintenance cost
High activity level	69000	96570
Low activity level	39000	62670
Change	30000	33900
Variable cost element	1.13	=33900/30000
Fixed cost element	18600	=96570-(69000*1.13)
Y = 18600 + 1.13 X
3
	Variable cost per machine hour	Fixed cost
Utilities cost	1.10
Supervisory salaries cost		46000
Maintenance cost	1.13	18600
Total overhead cost	2.23	64600
Y = 64600 + 2.23 X
4
Total overhead costs	162720	=64600+(44000*2.23)