In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were $223,000. Of this amount, utilities were $48,000 (all variable) and amortization was $60,000 (all fixed). The balance of the overhead costs consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.

-If 110,000 machine hours of activity are projected for next period,what would be total expected overhead cost?
A) $242,500.
B) $256,000.
C) $263,500.
D) $306,625.

Question

In the O'Donnell Manufacturing Company, at an activity level of 80,000 machine hours, total overhead costs were $223,000. Of this amount, utilities were $48,000 (all variable) and amortization was $60,000 (all fixed). The balance of the overhead costs consisted of maintenance cost (mixed). At 100,000 machine hours, maintenance costs were $130,000.
Assume that all of the activity levels mentioned in this problem are within the relevant range.

-If 110,000 machine hours of activity are projected for next period,what would be total expected overhead cost?
A) $242,500.
B) $256,000.
C) $263,500.
D) $306,625.

Quizplus · Accepted Answer

The formula to calculate total expected overhead cost is:
Total Overhead Cost = Total Machine Hours * Overhead Rate per Machine Hour
Using the information given in the question and the data provided in the table, we can calculate the overhead rate per machine hour as:
Overhead Rate per Machine Hour = Total Estimated Overhead Cost / Total Estimated Machine Hours
= $581,500 / 220,000
= $2.65 per machine hour
Using this rate and the projected machine hours of 110,000, we can calculate the total expected overhead cost as:
Total Overhead Cost = 110,000 * $2.65
= $290,500

Therefore, the best choice is C as it matches the calculated value.

In the O'Donnell Manufacturing Company, at an Activity Level of 80,000