Managerial Cost Accounting

Handout Problem for Chapter 3

Spring 2021

Harmon Company reported the following total factory overhead costs last year (2020):

Hours Of Total Factory

Direct Labor Overhead Cost

January 150 $780

February 300 $1,100

March 125 $740

April 200 $900

May 450 $1,400

June 400 $1,320

July 320 $1,140

August 160 $820

September 180 $860

October 290 $1,080

November 260 $1,020

December 350 $1,200

Harmon believes that the number of hours worked by the direct laborers is the cost DRIVER for factory overhead costs. You are trying to determine approximately how much of the factory overhead is variable and how much is fixed.

Instructions: Answer the following questions. Please show and label your work where

calculations are needed.

1.Choose a high month from last year _____________________

2.Choose a low month from last year ______________________

3.Use the choices in 1 and 2 to determine the variable overhead rate per hour of direct labor

by using the high-low method

4.Based upon your answers above, determine the total amount of FIXED factory overhead

cost

using the high-low method

5.Develop a formula to estimate total factory overhead costs for your company.

6.Pick a third month ______________________

7.Apply your formula in "5." to the activi

ty in month "6." Did you get the same total factory overhead cost as reported in 2020? Why or why not?

8.If the boss told you that your company plans to work 480 hours of direct labor next

month (March 2021), how much variable overhead cost would be expected? How much

fixed overhead cost would be expected?