(Appendix 5A) The management of Casablanca Manufacturing Corporation believes that machine-hours is an appropriate measure of activity for overhead cost. Shown below are machine-hours and total overhead costs for the past six months:
Assume that the relevant range includes all of the activity levels mentioned in this problem.
-If Casablanca expects to incur 185,000 machine hours next month,what will the estimated total overhead cost be using the high-low method?
A) $212,750
B) $359,750
C) $382,750
D) $381,700

Question

(Appendix 5A) The management of Casablanca Manufacturing Corporation believes that machine-hours is an appropriate measure of activity for overhead cost. Shown below are machine-hours and total overhead costs for the past six months:
  Assume that the relevant range includes all of the activity levels mentioned in this problem.
-If Casablanca expects to incur 185,000 machine hours next month,what will the estimated total overhead cost be using the high-low method?
A) $212,750 
B) $359,750 
C) $382,750 
D) $381,700

Quizplus · Accepted Answer

11ea7761_188e_1848_81a5_39cc6d4cd726_TB2580_00 Variable cost = Change in cost ÷ Change in activity = $80,500 ÷ 70,000 MHs = $1.15 per MH
Fixed cost element = Total cost - Variable cost element
= $400,000 - ($1.15 per MH × 200,000 MHs) = $170,000
Y = a + bX = $170,000 + ($1.15 per MH × 185,000 MHs) = $382,750

(Appendix 5A) the Management of Casablanca Manufacturing Corporation Believes That