Question - Total overhead costs at various levels of activity are given below:
Month DL Hours Total Ohd Costs
March 80,000 $412,500
April 90,000 410,000
May 100,000 585,000
June 120,000 582,500
Assume that overhead costs consist of rent, indirect materials, utilities, supervisory salaries, and maintenance. The proportion of these costs at the 80,000 direct labor-hour level of activity is:
Rent (F) $ 20,500
Indirect materials (V) 160,000
Supervisory salaries (F) 30,000
Utilities (V) 80,000
Maintenance (M) 122,000
Total $412,500
(F) = Fixed; (V) = Variable; (M) = Mixed
The company wants to break down the maintenance cost into its variable and fixed cost components.
1. By means of the high-low method, determine the cost formula for maintenance.
2. Express the company's total overhead cost in linear equation form.
3. What total overhead cost would you expect to incur at an operating activity of 75,000 direct labor hours? At 115,000 direct labor hours?