Asked by Maryana Bilska on May 11, 2024
Verified
If Casablanca expects to incur 185,000 machine hours next month, what will the estimated total overhead cost be using the high-low method?
A) $212,750
B) $359,750
C) $382,750
D) $381,700
Overhead Cost
Expenses related to the day-to-day running of a business that cannot be directly tied to a specific product or service, such as rent, utilities, and administrative salaries.
Machine Hours
This is a measure of the amount of time a machine is operated and is often used in the allocation of manufacturing overhead to products based on usage.
High-low Method
A method employed in managerial accounting that estimates variable and fixed costs by analyzing the most and least active periods.
- Forecast future expenditures or costs utilizing provided data.
Verified Answer
Variable cost = Change in cost ÷ Change in activity = $80,500 ÷ 70,000 MHs = $1.15 per MHFixed cost element = Total cost - Variable cost element
= $400,000 - ($1.15 per MH × 200,000 MHs)= $170,000
Y = a + bX = $170,000 + ($1.15 per MH × 185,000 MHs)= $382,750
Learning Objectives
- Forecast future expenditures or costs utilizing provided data.
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