Reference: 06-04
In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were
$223,000. Of this amount, utilities were $48,000 (all variable) and depreciation was $60,000 (all fixed). The balance of the overhead cost consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.
-The total fixed overhead cost for O'Donnell is?
A)$60,000.
B)$130,000.
C)$55,000.
D)$115,000.

Question

Quizplus · Accepted Answer

First, we need to determine the variable portion of the maintenance cost.

Variable maintenance cost = Total overhead cost - Fixed overhead cost - Variable utilities cost - Fixed depreciation cost
Variable maintenance cost = $223,000 - $60,000 - $48,000 = $115,000

Next, we can use the high-low method to determine the fixed portion of the maintenance cost.

Change in cost = $130,000 - $115,000 = $15,000 
Change in activity = 100,000 - 80,000 = 20,000 
Variable cost per unit = $15,000 / 20,000 machine hours = $0.75 per machine hour

Now we can use the total overhead cost equation to calculate the fixed overhead cost:

Total overhead cost = Fixed overhead cost + Variable cost per unit x Activity level 
$223,000 = Fixed overhead cost + $0.75 x 80,000 
Fixed overhead cost = $115,000

Therefore, the total fixed overhead cost for O'Donnell is $115,000.

Reference: 06-04 in the O'Donnell Manufacturing Company, at an Activity Level of Level