The Thomas Company's Total Overhead Costs at Various Levels of Activity

question 128

Essay

The Thomas Company's total overhead costs at various levels of activity are presented below:
$$\begin{array} { l c c } \text { Month } & \text { Direct Labor Hours } & \text { Total Overhead } \\\text { July } & 7,500 & \$ 272,000 \\\text { August } & 6,000 & 234,000 \\\text { September } & 9,000 & 319,000 \\\text { October } & 10,500 & 340,500\end{array}$$
Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 9,000 direct labor hour level of activity is as follows:
$$\begin{array} { l r } \text { Utilities } ( V ) & \$ 137,700 \\\text { Supervisory Salaries } ( F ) & 80,000 \\\text { Maintenarice } ( M ) & 101,300 \\ & 319,000\end{array}$$
Required:
(a.) Using the high-low method, determine the cost formula for maintenance.
(b.) Express the company's total overhead costs in linear equation form.

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Definitions:

Securities

Financial instruments that represent an ownership position in a publicly traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

Collateral

An asset that a borrower offers to a lender as security for a loan.

Hypothecated

Hypothecated refers to assets that are pledged as collateral for a loan without transferring title or possession to the lender, often used in secured loans.

Loan

A financial agreement in which one party lends money to another, which is then required to repay the amount along with interest over a predetermined period.