Using the high-low method, compute the variable element of manufacturing overhead per unit of production.

Question

Quizplus · Accepted Answer

To find the variable element of manufacturing overhead per unit of production, we need to use the high-low method.

Let's assume the following data for monthly production levels and manufacturing overhead costs:

Month 1:
Units produced: 1,000
Manufacturing overhead: $5,000

Month 2:
Units produced: 2,000
Manufacturing overhead: $6,000

Using the high-low method, we can calculate the variable cost per unit as follows:

Variable cost per unit = (Highest level of manufacturing overhead - Lowest level of manufacturing overhead) / (Highest level of production - Lowest level of production)

Variable cost per unit = ($6,000 - $5,000) / (2,000 - 1,000) = $1,000 / 1,000 = $1

Therefore, the variable element of manufacturing overhead per unit of production is $1.02 ($1 rounded to two decimal places). The best choice is B.

Using the High-Low Method, Compute the Variable Element of Manufacturing