Homework Help is Here – Start Your Trial Now!
Business
Accounting
7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month. The manager of the company believes that the cost driver is the number of machine-hours used in its production facility. These costs for the last four months in 2020 are given below. Machine-hours Total factory overhead 6,500 10,000 8,500 September 2$ 104,400 October $ 130,000 November 24 118,500 December 5,000 2$ $ 100,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 2$ 10,000 ? 50,000 2$ 100,000 Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.) A. $ 58,800 $ В. 51,600 С. 73,200 D. 2$ 37,920 E. None of the above

7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month. The manager of the company believes that the cost driver is the number of machine-hours used in its production facility. These costs for the last four months in 2020 are given below. Machine-hours Total factory overhead 6,500 10,000 8,500 September 2$ 104,400 October $ 130,000 November 24 118,500 December 5,000 2$ $ 100,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 2$ 10,000 ? 50,000 2$ 100,000 Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.) A. $ 58,800 $ В. 51,600 С. 73,200 D. 2$ 37,920 E. None of the above

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter3: Cost Behavior
Section: Chapter Questions
Problem 10E: SmokeCity, Inc., manufactures barbeque smokers. Based on past experience, SmokeCity has found that...
See similar textbooks
icon
Related questions
Question

from where the $ 3 amount that I highlighted is coming from, please , can you explain me.

Thank you

 

Step 1 Fixed cost os fixed at every level of output. Whereas, variable cost varies with the change in output. Step 2 Calculation of expected maintenance cost: Highest cost-Lowest cost Variable cost per unit = Highest activity level-Lowest activity level $130,000–S100,000 10,000-5,000 = $6 Per unit variable cost for indirect material Variable cost of indirect material Machine hour $10,000 5,000 = $2 Per unit variable cost for maintenance = Variable cost per unit = Per units variable cost for indirect material = $6 – $2 = $4 Fixed cost maintenance = $50, 000 – (5,000 x 4) = $30, 000 Maintenance cost at 7, 200 machine hours = Variable.cost + Fixed cost = (7, 200 x $3) + $30, 000 = $51, 600 Therefore, option "b. $51,600" is correct.
Transcribed Image Text:Step 1 Fixed cost os fixed at every level of output. Whereas, variable cost varies with the change in output. Step 2 Calculation of expected maintenance cost: Highest cost-Lowest cost Variable cost per unit = Highest activity level-Lowest activity level $130,000–S100,000 10,000-5,000 = $6 Per unit variable cost for indirect material Variable cost of indirect material Machine hour $10,000 5,000 = $2 Per unit variable cost for maintenance = Variable cost per unit = Per units variable cost for indirect material = $6 – $2 = $4 Fixed cost maintenance = $50, 000 – (5,000 x 4) = $30, 000 Maintenance cost at 7, 200 machine hours = Variable.cost + Fixed cost = (7, 200 x $3) + $30, 000 = $51, 600 Therefore, option "b. $51,600" is correct.
7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month The manager of the company believes that the cost driver is the number of machine-hours used in its production facility. These costs for the last four months in 2020 are given below. Total factory overhead 2$ Machine-hours 6,500 10,000 8,500 104,400 $ 130,000 $ 118,500 $ 100,000 September October November December 5,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 2$ 10,000 50,000 24 100,000 Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.) A. 24 58,800 В. 24 51,600 С. 2$ 73,200 D. 2$ 37,920 None of the above E.
Transcribed Image Text:7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month The manager of the company believes that the cost driver is the number of machine-hours used in its production facility. These costs for the last four months in 2020 are given below. Total factory overhead 2$ Machine-hours 6,500 10,000 8,500 104,400 $ 130,000 $ 118,500 $ 100,000 September October November December 5,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 2$ 10,000 50,000 24 100,000 Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.) A. 24 58,800 В. 24 51,600 С. 2$ 73,200 D. 2$ 37,920 None of the above E.
Expert Solution
High-Low Method:

Under High-Low Method the per-unit variable cost is computed as follows: -

Per Unit Variable Cost = Total Cost at Highest Level - Total Cost at Lowest LevelHighest Level Units - Lowest Level Units

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Basic Accounting Terms
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
SEE MORE TEXTBOOKS