Question

"The following information is available regarding the total manufacturing overhead (semi-variable cost) of bursa manufacturing company for a recent four-month period: machine-hours manufacturing overhead january 5,200 $ 300,000 february 3,200 224,000 march 4,900 263,800 april 2,600 190,000 required:

a-1. Using the high-low method, determine the variable element of manufacturing overhead costs per machine-hour.

a-2. Employ the high-low method to identify the fixed element of monthly overhead cost.

b. Bursa anticipates 5,300 machine-hours in May. Forecast May's manufacturing overhead costs using the cost relationships from part a.

c. If Bursa used the cost relationships from part a to estimate total manufacturing overhead for February and March, calculate the over- or underestimation amounts for these months.

Answer 1

The high-low method can be used to determine the variable and fixed elements of the manufacturing overhead costs. The variable element per machine-hour is $42.31, and the fixed element of monthly overhead cost is $82,772. May's manufacturing overhead costs are forecasted to be $224,243. The overestimation amount for February is $88,608, and for March is $56,621.

Step-by-step explanation:

The high-low method can be used to determine the variable and fixed elements of the manufacturing overhead costs.

A-1: To find the variable element per machine-hour, we need to look at the highest and lowest levels of machine-hours and their corresponding manufacturing overhead costs. The highest level is 5,200 machine-hours in January with a cost of $300,000, and the lowest level is 2,600 machine-hours in April with a cost of $190,000. The change in manufacturing overhead costs ($300,000 - $190,000 = $110,000) is due to the change in machine-hours (5,200 - 2,600 = 2,600). Therefore, the variable element per machine-hour is $110,000/2,600 machine-hours = $42.31 per machine-hour.

A-2: To find the fixed element of monthly overhead cost, we can subtract the variable element from the total manufacturing overhead cost at any given month. Using the highest level of machine-hours in January (5,200) and the variable element per machine-hour ($42.31), we can calculate the fixed element: $300,000 - (5,200 * $42.31) = $82,772. The fixed element of monthly overhead cost is $82,772.

B: To forecast May's manufacturing overhead costs, we can multiply the anticipated machine-hours (5,300) by the variable element per machine-hour ($42.31): 5,300 * $42.31 = $224,243. May's manufacturing overhead costs are forecasted to be $224,243.

C: To calculate the over- or underestimation amounts for February and March, we can compare the actual manufacturing overhead costs with the costs estimated using the cost relationships from part a. In February, the actual manufacturing overhead cost is $224,000, and the estimated cost using the cost relationships is 3,200 * $42.31 = $135,392. The overestimation amount is $224,000 - $135,392 = $88,608. In March, the actual manufacturing overhead cost is $263,800, and the estimated cost using the cost relationships is 4,900 * $42.31 = $207,179. The overestimation amount is $263,800 - $207,179 = $56,621.