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:

Working Capital Form

A calculation method to determine a company's operational liquidity by subtracting current liabilities from current assets.

Financial Position Form

A statement or report detailing a company's financial standing at a particular point in time, including its assets, liabilities, and equity.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, demonstrating its financial position.

Descriptive Statement

A statement providing detailed information or explanations about a subject to convey understanding or clarify meaning.