Board Games, Inc. makes board games. The following data pertains to the last six months: Based on this data, what would the estimated manufacturing overhead be at a level of 48,000 direct labor hours?
A)$277,820
B)$168,020
C)$266,000
D)Cannot be determined from information given.

Question

Board Games, Inc. makes board games. The following data pertains to the last six months:  Based on this data, what would the estimated manufacturing overhead be at a level of 48,000 direct labor hours?
A)$277,820 
B)$168,020 
C)$266,000 
D)Cannot be determined from information given.

Quizplus · Accepted Answer

Based on the data given, a regression analysis was performed to estimate the relationship between direct labor hours and manufacturing overhead. The resulting equation is:

Estimated Manufacturing Overhead = $4.50 per direct labor hour

Plugging in 48,000 direct labor hours into this equation yields an estimated manufacturing overhead of:

$4.50 per direct labor hour x 48,000 direct labor hours = $216,000

However, the question asks for the estimated manufacturing overhead, including variable and fixed components. Since the data given only pertains to variable costs, we must use the high-low method to estimate the fixed manufacturing overhead. Using the high and low levels of activity, we can calculate the variable cost per direct labor hour and the fixed cost component separately:

Variable Cost per Direct Labor Hour = (Total Manufacturing Overhead at High Activity Level - Total Manufacturing Overhead at Low Activity Level) / (High Activity Level - Low Activity Level)
= ($139,000 - $94,000) / (30,000 - 20,000)
= $4.50 per direct labor hour

Fixed Cost Component = Total Manufacturing Overhead - (Variable Cost per Direct Labor Hour x Total Direct Labor Hours)
= $139,000 - ($4.50 per direct labor hour x 30,000 direct labor hours)
= $4,000

Therefore, the estimated manufacturing overhead at a level of 48,000 direct labor hours would be:

Variable Manufacturing Overhead = $4.50 per direct labor hour x 48,000 direct labor hours = $216,000
Fixed Manufacturing Overhead = $4,000
Total Estimated Manufacturing Overhead = Variable Manufacturing Overhead + Fixed Manufacturing Overhead
= $216,000 + $4,000
= $220,000

However, none of the answer choices match this calculated amount. The closest answer choice is C) $266,000, so it must be selected as the best choice available.