The Blaine Company is a highly automated manufacturer. At an activity level of 6,000 machine setups, total overhead costs equal £240,000. Of this amount, depreciation totals £80,000 (all fixed) and lubrication totals £72,000 (all variable). The remaining £88,000 of the total overhead cost consists of utility cost (mixed). At an activity level of 9,000 setups, utility cost totals £112,000.
Assume that the relevant range includes all of the activity levels mentioned in this problem.
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The total fixed overhead costs for Blaine Company are most likely closest to

Question

Quizplus · Accepted Answer

The fixed overhead costs include the fixed portion of the utility cost and the depreciation. The depreciation is £80,000. To find the fixed portion of the utility cost, we calculate the variable cost per setup for utilities: (£112,000 - £88,000) / (9,000 - 6,000) = £8 per setup. At 6,000 setups, the variable portion of utility cost is 6,000 * £8 = £48,000. Therefore, the fixed portion of utility cost is £88,000 - £48,000 = £40,000. Total fixed overhead costs = £80,000 (depreciation) + £40,000 (fixed utility) = £120,000.

The Blaine Company Is a Highly Automated Manufacturer