Milano Company has an average overhead cost per hour of $10.50 at 3,500 machine hours, and at 3,000 hours it is $11.25. The company managers wish to estimate the overhead cost function. What is the variable overhead cost per machine hour?
A) $1.00
B) $2.00
C) $6.00
D) $8.00

Question

Quizplus · Accepted Answer

The variable overhead cost per machine hour can be calculated using the high-low method. The change in total overhead cost divided by the change in machine hours gives the variable cost per hour: (($11.25 - $10.50) * 3000) / (3500 - 3000) = $6.00.

Milano Company Has an Average Overhead Cost Per Hour of $10.50