Problem - The following information is available regarding the total manufacturing overhead of Bursa Mfg. Co. for a recent four-month period:
Machine-
Hours Manufacturing Overhead
Jan. 6,000 $320,000
Feb. 3,200 224,000
Mar. 4,900 264,000
Apr. 2,500 180,000
a-1. Use the high-low method to determine the variable element of manufacturing overhead costs per machine-hour.
a-2. Use the high-low method to determine the fixed element of monthly overhead cost.
b. Bursa expects machine-hours in May to equal 4,500. Use the cost relationships determined in part a to forecast May's manufacturing overhead costs.
c. Suppose Bursa had used the cost relationships determined in part a to estimate the total manufacturing overhead expected for the months of February and March. By what amounts would Bursa have over- or underestimated these costs?