Field Legal Services is trying to determine the variable and fixed elements of its service overhead.The following data have been collected from recent activity: The formula for total service overhead costs is

Question

Field Legal Services is trying to determine the variable and fixed elements of its service overhead.The following data have been collected from recent activity:  The formula for total service overhead costs is

Quizplus · Accepted Answer

To determine the variable and fixed elements of service overhead, we use the high-low method with the data provided.

From the data, we can see that when the number of cases is 30, the total service overhead cost is $9,200. When the number of cases is 20, the total service overhead cost is $7,000.

The variable cost per case is: 
Variable Cost = (High Cost – Low Cost) / (High Activity – Low Activity)
Variable Cost = ($9,200 - $7,000) / (30 - 20) = $220 / 10 = $22

To find the fixed cost, we can use the formula:
Fixed Cost = Total Cost – (Variable Cost per unit x Number of Units)
Fixed Cost = $9,200 - ($22 x 30) = $7,080

Therefore, the formula for total service overhead costs is:
$7,080 + $140 per case.

So, the best choice is D.

Field Legal Services Is Trying to Determine the Variable and Fixed