Question

Neevey Inc. tracks activity based on machine-hours. In March, Neevy used 2900 machine-hours.
Manufacturing overhead costs were incurred as follows:

$14500.....Utilities (a variable cost) $35050.....

Maintenance (a mixed cost) $18000......

Supervisor salaries (a fixed cost) $67550....

Total overhead in March Total overhead in April was $89400 and machine-hours in April was 5200. Do not enter expenses as negative numbers.

1. How much of the April overhead must have been for Utilities?

2. How much of the April overhead must have been for Maintenance?

Answer 1

Total variable cost per hour:

Change in hours = 5,200 – 2,900 = 2,300

Incremental cost (Variable cost) for 2,300 hours = 89,400 – 67,550 = 21,850

Variable cost per hour = 21,850/2,300 = 9.5

Total variable cost for 2,900 hours = 2,900 * 9.5 = 27,550

Variable cost attributable to maintenance = 27,550 – 14,500 (utilities) = 13,050

Maintenance fixed cost = 35,050 – 13,050 = 22,000

Variable cost per hour for utilities = 14,500/2,900 = 5

Variable cost per hour for Maintenance = 13,050/2,900 = 4.5

At 5,200 hours level in April:

Utilities = 5* 5,200 = 26,000

Maintenance = 22,000 + 4.5*5,200 = 45,400