The manager at Screaming Trees has been trying to calculate the portion of the company's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of yards of processed was highest in July, when the total monthly overhead costs totaled $31,000 for 36,000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in October, when total overhead costs were $25,000 for 24,000 yards of mulch processed. What is the fixed portion of the monthly overhead expenses?
A)$7000
B)$13,000
C)$18,000
D)$25,000

Question

Quizplus · Accepted Answer

To find the fixed portion of the monthly overhead expenses, we need to use the high-low method.

First, let's calculate the variable costs per yard:

Variable costs per yard = (highest total overhead cost - lowest total overhead cost) / (highest number of yards processed - lowest number of yards processed)

Variable costs per yard = ($31,000 - $25,000) / (36,000 - 24,000) = $6,000 / 12,000 = $0.50

Now, we can use either the high or the low point to calculate the fixed costs. Let's use the high point (July):

Fixed costs = Total overhead costs - (Variable costs per yard x Number of yards processed)

Fixed costs = $31,000 - ($0.50 x 36,000) = $31,000 - $18,000 = $13,000

Therefore, the fixed portion of the monthly overhead expenses is $13,000. Answer choice B is correct.

The Manager at Screaming Trees Has Been Trying to Calculate