Milano Company has an average overhead cost per hour of $10.50 at 3,500 machine hours, and at 3,000 hours it is $11.25. The company managers wish to estimate the overhead cost function. What is the fixed overhead cost?
A) $15,750
B) $36,750
C) $21,000
D) $18,000

Question

Quizplus · Accepted Answer

Fixed overhead cost = $15,750Explanation:Fixed overhead cost = Total overhead cost - Variable overhead costVariable overhead cost per hour = (Overhead cost at 3,500 hours - Overhead cost at 3,000 hours) / (3,500 hours - 3,000 hours)= ($10.50 - $11.25) / (3,500 hours - 3,000 hours)= -$0.75 / 500 hours= -$0.0015 per hourFixed overhead cost = $10.50 per hour - $0.0015 per hour * 3,500 hours= $10.50 per hour - $5.25= $15,750

Milano Company Has an Average Overhead Cost Per Hour of $10.50