Fixed costs remain constant at $200,000 per month.During high-output months variable costs are $160,000, and during low-output months variable costs are $40,000.What are the respective high and low indirect cost allocation rates if professional labour-hours are 8,000 for high-output months and 2,000 for low-output months?

Question

Quizplus · Accepted Answer

For high-output months: Total costs = Fixed costs + Variable costs = $200,000 + $160,000 = $360,000. Indirect cost allocation rate = Total costs / Labour-hours = $360,000 / 8,000 = $45.00 per hour.  For low-output months: Total costs = Fixed costs + Variable costs = $200,000 + $40,000 = $240,000. Indirect cost allocation rate = Total costs / Labour-hours = $240,000 / 2,000 = $120.00 per hour.

Fixed Costs Remain Constant at $200,000 Per Month