L$020-1,$ LO$20-9$

EXERCISE $20\mathrm{.}2$

High$-$Low Method of Cost

Analysis

The following information is available regarding the total manufacturing overhead of Bursa Mfg$.$

Co$.$ for a recent four$-$month period.

a$.$ Use the high$-$low method to determine:

The variable element of manufacturing overhead costs per machine$-$hour.

The fixed element of monthly overhead cost.

b$.$ Bursa expects machine$-$hours in May to equal $4,500.$ Use the cost relationships determined in

part a to forecast May's manufacturing overhead costs.

c$.$ Suppose Bursa had used the cost relationships determined in part a to estimate the total man$-$

ufacturing overhead expected for the months of February and March. By what amounts would

Bursa have over$-$ or underestimated these costs?