The factory overhead of TJD Ltd has fluctuated significantly from year to year in relation to the
Question:
The factory overhead of TJD Ltd has fluctuated significantly from year to year in relation to the direct machine hours. The average costs at the average high and low levels of activity during the past 3 years are as follows:
Level of activity | ||||
High | Low | |||
Factory overhead Direct machine hours | $ | 3 360 000 480 000 | $ | 2 400 000 320 000 |
Factory overhead consists of indirect materials, repairs and maintenance, rates and taxes, and power. The company has analysed these costs at the low level of activity and determined that the costs are incurred as follows at that level:
Indirect materials (variable) Repairs and maintenance (mixed) Rates and taxes (fixed) Power (variable) | $ | 832 000 720 000 184 000 384 000 |
Total | $ | 2 120 000 |
Required
A. Determine the cost function for factory overhead using the format y = a+ bx.
B. If direct machine hours of 300 000 are expected for the next year, what is the estimate of factory overhead?
C. Calculate how much of the factory overhead is maintenance cost at the high activity level of 480 000 direct machine hours.
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett