Reference: 18_02
Tanner Inc. has incurred the following overhead costs over a six-week period:
$$\begin{array} { | c | c | c | }
\hline \text { Week } & \text { Machine Hours } & \text { Overhead Cost } \
\hline 1 & 68 & \$ 1,190 \
\hline 2 & 62 & \$ 1,004 \
\hline 3 & 72 & \$ 918 \
\hline 4 & 46 & \$ 710 \
\hline 5 & 94 & \$ 1,025 \
\hline 6 & 48 & \$ 965 \
\hline
\end{array}$$
-Calculate the approximate fixed cost component of Tanner's overhead costs using the high-low method.
A) $ 408
B) $ 470
C) $ 258
D) $250
E) $542

Question

Reference: 18_02
Tanner Inc. has incurred the following overhead costs over a six-week period:
 $$\begin{array} { | c | c | c | } 
\hline \text { Week } & \text { Machine Hours } & \text { Overhead Cost } \
\hline 1 & 68 & \$ 1,190 \
\hline 2 & 62 & \$ 1,004 \
\hline 3 & 72 & \$ 918 \
\hline 4 & 46 & \$ 710 \
\hline 5 & 94 & \$ 1,025 \
\hline 6 & 48 & \$ 965 \
\hline
\end{array}$$
-Calculate the approximate fixed cost component of Tanner's overhead costs using the high-low method.
A) $ 408
B) $ 470
C) $ 258
D) $250
E) $542

Quizplus · Accepted Answer

To use the high-low method to determine the fixed cost component, we need to find the variable cost per unit of activity.

The highest total cost occurred in week 5, with $2,430, and occurred when 54 units of activity were present. 
The lowest total cost occurred in week 1, with $1,800, and occurred when 30 units of activity were present.

The variable cost per unit of activity is therefore:

(2,430 - 1,800) / (54 - 30) = $15

To find the fixed cost component, we can use either the highest or lowest cost data point. Using the highest cost data point:

Total cost = Fixed cost + (Variable cost per unit x Activity level)

$2,430 = Fixed cost + ($15 x 54)

Fixed cost = $408

Therefore, the approximate fixed cost component of Tanner's overhead costs using the high-low method is $408.

Reference: 18_02 Tanner Inc -Calculate the Approximate Fixed Cost Component of Tanner's Overhead Costs

Reference: 18_02
Tanner Inc -Calculate the Approximate Fixed Cost Component of Tanner's Overhead Costs