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The following information is available regarding the total manufacturing overhead of Olsen Company for a recent four-month period.

-Using the high-low method,compute the variable element of manufacturing overhead cost per machine hour.

Question

[The following information applies to the questions displayed below.]
The following information is available regarding the total manufacturing overhead of Olsen Company for a recent four-month period.
 
-Using the high-low method,compute the variable element of manufacturing overhead cost per machine hour.

Quizplus · Accepted Answer

To calculate the variable element of manufacturing overhead cost per machine hour using the high-low method, we need to identify the highest and lowest levels of activity and the corresponding total manufacturing overhead costs.

From the given data, we can see that the highest level of activity (in terms of machine hours) occurred in March, with 36,000 machine hours and a total manufacturing overhead cost of $67,800. The lowest level of activity occurred in January, with 20,000 machine hours and a total manufacturing overhead cost of $33,600.

Using the high-low method formula, we can calculate the variable element of manufacturing overhead cost per machine hour as follows:

Variable element = (Total cost at highest level of activity - Total cost at lowest level of activity) / (Highest level of activity - Lowest level of activity)

Variable element = ($67,800 - $33,600) / (36,000 - 20,000)

Variable element = $34,200 / 16,000

Variable element = $2.1375 per machine hour

Rounding to two decimal places, we get $2.14 per machine hour.

Therefore, the best choice is B, $1.50 per machine hour, as it is not among the answer choices given and can be ruled out as a possibility.

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