AFM123 Chapter Notes - Chapter 3: Fixed Cost, Variable Cost, European Cooperation In Science And Technology

81 views1 pages

puceclam474

3 Mar 2016

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM123

Professor

Jiye Li

For unlimited access to Textbook Notes, a Class+ subscription is required.

Document Summary

The relevant range of activity for a fixed cost is the range of activity over which the graph of the cost is flat. Mixed cost is one that contains both variable and fixed cost elements: y = a + bx. Y = total mixed cost a = total fixed cost (the vertical intercept of the line) = variable cost per unit of activity (the slope of the line) Identity the period with the lowest level of activity and the highest level of activity. The difference in cost between the two extreme activity levels is divided by the difference between the high and low activity levels to estimate the variable cost per unit of activity. We can now determine the amount of fixed cost. Fixed cost element = total cost variable cost element. 8,000 5,000: taking the total cost (either the high or low activity level) and deducting the variable cost element, note: using high activity level.

Related Questions

High-Low and Cost Formula Harrison Company has accumulated thefollowing total manufactur-

ing overhead costs for two levels of activity (within therelevant range):

LowHigh

Activity (direct laborhours)..........................................80,000 120,000

Total manufacturing overhead.......................................$468,000 $604,000

The total overhead cost includes variable, fixed, and mixedcosts. At 120,000 direct labor hours, the

total cost breakdown is as follows:

Variablecost...............................................................$264,000

Fixedcost.................................................................160,000

Semi-mixed cost...........................................................180,000

Required

a . Using the high-low method of cost analysis, determine thevariable portion of the semi-variable

cost per direct labor hour. Determine the total fixed costcomponent of the mixed cost.

b. What should the total planned overhead cost be at 100,000direct labor hours?

apricothound606

PROBLEM 2-20 High-Low Method; Predicting Cost [LO2-4, LO2-5] Nova Company's total overhead cost at various levels of activity are presented below: Machine Hours Total Overhead Cost Month April May ........ June ....... 70,000 60,000 80,000 90,000 $198,000 $174,000 $222,000 $246,000 July .... Assume that the total overhead cost above consists of utilities, supervisory salaries, and mainte- nance. The breakdown of these costs at the 60,000 machine-hour level of activity is: Utilities (variable) .. $ 48,000 Supervisory salaries (fixed) ... 21,000 Maintenance (mixed) 105,000 Total overhead cost .......... $174,000 ... Nova Company's management wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $246,000 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $246,000 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) Using the high-low method, estimate a cost formula for maintenance. 3. Express the company's total overhead cost in the linear equation form Y = a + bX. 4. What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours?

Mansah Co., Ltd., of Ghana is a manufacturing company whose total factory overhead costs fluctuate considerably from year to year according to increases and decreases in the number of direct labor-hours worked in the factory. Total factory overhead costs at high and low levels of activity for recent years are given below: Level of Activity Low High Direct labor-hours 56,100 74,800 Total factory overhead costs $ 276,310 $ 315,580 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 56,100-hour level of activity as follows: Indirect materials (variable) $ 95,370 Rent (fixed) 130,000 Maintenance (mixed) 50,940 Total factory overhead costs $ 276,310 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $315,580 factory overhead cost at the high level of activity consists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $315,580 consists of indirect materials and rent. Think about the behavior of variable and fixed costs

viridianantelope156

AFM123 Chapter Notes - Chapter 3: Fixed Cost, Variable Cost, European Cooperation In Science And Technology

Document Summary

Get access

Related Documents

AFM123 Chapter Notes - Chapter 2: Deferral, Executive Compensation, Income Statement

AFM123 Chapter Notes - Chapter 3: Contribution Margin, Variable Cost, Income Statement

AFM123 Chapter Notes - Chapter 2: Fixed Cost, Variable Cost, European Cooperation In Science And Technology

Related Questions