Echeverria SA is an Argentinian manufacturing company whose total factory overhead costs fluctuate somewhat from year to year according to the number of machine-hours worked in its production facility. These costs (in Argentinian pesos) at high and low levels of activity over recent years are given below:


The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 60,000 machine-hours level of activity as follows:
Indirect materials (variable) . . . . . . . . . 90,000 pesos
Rent (fixed) . . . . . . . . . . . . . . . . . . . . . . 130,000
Maintenance (mixed) . . . . . . . . . . . . . . 54,000
Total factory overhead costs . . . . . . . . 274,000 pesos
For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.

Required:
1. Estimate how much of the factory overhead cost of 312,000 pesos at the high level of activity consists of maintenance cost.
2. Using the high-low method, estimate a cost formula for maintenance.
3. What total overhead costs would you expect the company to incur at an operating level of 65,000machine-hours?
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March 30, 2012

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