Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months.
Using the high-low method, total monthly fixed overhead cost is calculated to be:
Definitions:
Net Present Value
A financial metric that calculates the present value of all future cash flows associated with an investment, minus the initial investment cost.
Present Value
The current worth of a future sum of money or stream of cash flows given a specified rate of return.
Unequal Lives
A term used in capital budgeting to describe projects or investments with different durations.
Replacement Chain Method
A capital budgeting technique that compares different investment projects with unequal lifespans by calculating their equivalent annual cost.
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