Assignment
Woodworks, Inc., produces cabinet doors. Manufacturing overhead costs tend to fluctuate from one month to the next, and management would like to accurately estimate these costs for planning and decision-making purposes.
The accounting staff at Woodworks recommends that costs be broken down into fixed and variable components. Because the production process is highly automated, most of the manufacturing overhead costs are related to machinery and equipment. The accounting staff believes the best starting point is to review historical data for costs and machine hours:
|
Reporting Period (Month)
|
Total Costs ($)
|
Machine Hours
|
|
January
|
278,000
|
1,550
|
|
February
|
280,000
|
1,570
|
|
March
|
266,000
|
1,115
|
|
April
|
290,000
|
1,700
|
|
May
|
262,000
|
1,110
|
|
June
|
269,000
|
1,225
|
|
July
|
275,000
|
1,335
|
|
August
|
286,000
|
1,660
|
|
September
|
250,000
|
1,000
|
|
October
|
253,000
|
1,020
|
|
November
|
260,000
|
1,025
|
|
December
|
281,000
|
1,600
|
Task: Use the high-low method to estimate the cost function and answer the following questions:
A. What is the total fixed cost?
B. What is the variable cost per machine hour?
C. What is the total cost for a monthly machine hours of 1,450 hours?