ABC Company's Total Overhead Costs at Various Levels of Activity

question 90

Essay

ABC Company's total overhead costs at various levels of activity are presented below:

Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the 50,000-machine-hour level of activity, these costs are presented below:

The company wants to break down the maintenance cost into its basic variable and fixed cost elements.

Required:

a) Estimate the maintenance cost for June.
b) Use the high-low method to estimate the cost formula for maintenance cost.
c) Estimate the total overhead cost at an activity level of 55,000 machine hours, using the separate estimates you obtained for its components.
d) Estimate the total overhead cost at an activity level of 55,000 machine hours, independent of the separate estimates you obtained for its components.

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Definitions:

Unconditioned Response

is a natural, automatic reaction to a stimulus that occurs without prior learning or conditioning.

Prosocial Behavior

Positive, constructive, helpful behavior. The opposite of antisocial behavior.

Permanent Change

An alteration that is lasting and not reversible, affecting the future state or condition of its subject.

Spontaneous Recovery

The reappearance of a learned response after its apparent extinction, without the need for further conditioning.