The management of Casablanca Manufacturing Corporation believes that machine-hours is an appropriate measure of activity for overhead cost. Shown below are machine-hours and total overhead costs for the past six months: Assume that the relevant range includes all of the activity levels mentioned in this problem.
If Casablanca expects to incur 185,000 machine hours next month, what will the estimated total overhead cost be using the high-low method? (Round your intermediate calculations to 2 decimal places.)

Question

The management of Casablanca Manufacturing Corporation believes that machine-hours is an appropriate measure of activity for overhead cost. Shown below are machine-hours and total overhead costs for the past six months:  Assume that the relevant range includes all of the activity levels mentioned in this problem.
If Casablanca expects to incur 185,000 machine hours next month, what will the estimated total overhead cost be using the high-low method? (Round your intermediate calculations to 2 decimal places.)

Quizplus · Accepted Answer

11eacbfc_c8b1_6ef4_8ffe_2f626b92eac1_TB7552_00 Variable cost = Change in cost ÷ Change in activity = $80,500 ÷ 70,000 MHs = $1.15 per MH
Fixed cost element = Total cost - Variable cost element
= $400,000 - ($1.15 per MH × 200,000 MHs) = $170,000
Y = a + bX= $170,000 + ($1.15 per MH × 185,000 MHs) = $382,750

The Management of Casablanca Manufacturing Corporation Believes That Machine-Hours Is