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The levels of production and of manufacturing overhead for the first five months of 2018 for Duke & Duchess Products are shown below:

-Using the high-low method,Duke & Duchess's monthly overhead cost is closest to which of the following? (Round your intermediate computations to two decimal places. )

Question

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The levels of production and of manufacturing overhead for the first five months of 2018 for Duke & Duchess Products are shown below:
 
-Using the high-low method,Duke & Duchess's monthly overhead cost is closest to which of the following? (Round your intermediate computations to two decimal places. )

Quizplus · Accepted Answer

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

Step 1: Calculate the change in overhead costs and production levels from the lowest to highest month.

Highest Month (May):
Overhead Cost = $236,380
Production Level = 12,000 units

Lowest Month (January): 
Overhead Cost = $120,942
Production Level = 5,000 units

Change in Cost = $236,380 - $120,942 = $115,438
Change in Production = 12,000 - 5,000 = 7,000 units

Step 2: Calculate the variable cost per unit of production.

Variable Cost per Unit = Change in Cost / Change in Production
Variable Cost per Unit = $115,438 / 7,000 units
Variable Cost per Unit = $16.49 per unit

Step 3: Use the variable cost per unit to calculate the fixed cost component of the overhead.

Using the highest month of May: 
Overhead Cost = Fixed Cost + (Variable Cost per Unit x Production Level)
$236,380 = Fixed Cost + ($16.49 x 12,000)
Fixed Cost = $46,918

Therefore, Duke & Duchess's monthly overhead cost is closest to $46,918, which is option D.

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