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The monthly high and low levels of direct labor hours and of total manufacturing overhead for Onyx Company are as shown:

-In a month in which 6,500 direct labor hours are worked,Onyx's manufacturing overhead should be approximately:

Question

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The monthly high and low levels of direct labor hours and of total manufacturing overhead for Onyx Company are as shown:
 
-In a month in which 6,500 direct labor hours are worked,Onyx's manufacturing overhead should be approximately:

Quizplus · Accepted Answer

By looking at the chart, we can see that the highest level of direct labor hours is 7,500 and the lowest level is 5,000. The highest level of manufacturing overhead is $35,000 and the lowest level is $18,000. To find the approximate manufacturing overhead for 6,500 direct labor hours, we need to find where 6,500 falls between 5,000 and 7,500.

We can use the high-low method to estimate the manufacturing overhead. First, we need to determine the variable rate:

Variable rate = (Highest level of manufacturing overhead - Lowest level of manufacturing overhead) / (Highest level of direct labor hours - Lowest level of direct labor hours)
Variable rate = ($35,000 - $18,000) / (7,500 - 5,000) = $8 per direct labor hour

Now we can use this variable rate to estimate the manufacturing overhead for 6,500 direct labor hours:

Manufacturing overhead = Lowest level of manufacturing overhead + (Variable rate x Actual direct labor hours)
Manufacturing overhead = $18,000 + ($8 x 6,500) = $31,000

Therefore, the best answer choice is C.

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