Bradford Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost:
C = $80,000 + $12M
where:
C = monthly manufacturing overhead cost, and
M = machine hours
The standard error of estimate of the regression is $6,000. The standard time required to manufacture one six-unit case of Bradford's single product is two machine hours. Bradford applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 50,000 cases.
Bradford's estimated variable manufacturing overhead cost for a month in which scheduled production is 5,000 cases would be:
A) $80,000.
B) $120,000.
C) $140,000.
D) $200,000.
E) Some amount other than these answer choices.

Question

Quizplus · Accepted Answer

The variable manufacturing overhead cost is determined by the variable component of the cost equation, which is $12 per machine hour. For 5,000 cases, with each case requiring 2 machine hours, the total machine hours are 10,000 (5,000 cases * 2 hours/case). Therefore, the variable cost is $12 * 10,000 = $120,000.

Bradford Company Derived the Following Cost Relationship from a Regression