The Missou Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours.The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours.What is the total estimated cost for 2,600 machine hours using the high-low method to estimate the cost equation?

Question

Quizplus · Accepted Answer

Using the high-low method, first we calculate the variable cost per machine hour:
Variable cost per machine hour = (Total overhead cost at high activity level - Total overhead cost at low activity level) / (High activity level - Low activity level)
= ($14,182 - $8,748) / (4,200 - 2,300)
= $2.717 per machine hour

Next, we use this variable cost per machine hour to estimate the fixed portion of overhead costs:
Fixed cost = Total overhead cost - (Variable cost per machine hour × Total machine hours)
= $8,748 - ($2.717 × 2,300)
= $2,518.3

Now, we can use either of the two activity levels to estimate the total overhead cost for 2,600 machine hours. Let's use the activity level of 2,600 machine hours:
Total estimated cost = Fixed cost + (Variable cost per machine hour × Total machine hours)
= $2,518.3 + ($2.717 × 2,600)
= $9,605.8 ≈ $9,606

Therefore, the best choice is B.

The Missou Manufacturing Company Recorded Overhead Costs of $14,182 at an Activity