Question

Thompson Refrigerators Inc. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month Total Overhead Machine Hours Jan. $8,258 2,134 Feb. 8,006 2,045 Mar. 8,387 2,276 Apr. 8,832 2,743 May 8,921 2,834 June 7,841 2,034 Using the high-low method, total monthly fixed overhead cost is calculated to be:

Answer 1

$5,095.10

Step-by-step explanation:

The computation of the total monthly fixed overhead cost using the high-low method is given below:

But before that the variable cost per unit is

Variable cost per unit is

= [Total cost at highest level - Total cost at lowest level] ÷ [Highest level - Lowest level]

= ($8,921 - $7,841) ÷ (2,834 - 2,034)

= $1.35

Now

The total fixed cost for the month is

= $8921 - (1.35 × 2,834)

= $5,095.10