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

question 52

Essay

ABC Company's total overhead costs at various levels of activity are presented below:
$\begin{array}{|l|r|r|}\hline & \text { Machine hours } & \text { Total overhead costs } \\\hline \text { March } & 60,000 & \$ 216,800 \\\hline \text { April } & 50,000 & 194,000 \\\hline \text { May } & 70,000 & 239,600 \\\hline \text { June } & 80,000 & 262,400 \\\hline\end{array}$
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:
$\begin{array}{|l|r|}\hline \text { Utilities (V) } & \$ 54,000 \\\hline \text { Supervisory salaries (F) } & 62,000 \\\hline \text { Maintenance (M) } & 78,000 \\\hline \text { Total overhead costs } & \$ 194,000 \\\hline\end{array}$
V = Variable,F = Fixed,M = Mixed
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:

Security Agreement

A legal document that provides a lender a security interest in a specified asset or property that is pledged as collateral for a loan, in case of borrower default.

Authenticated Record

A document verified as genuine, usually through a process that confirms its origin and integrity.

Collateral

Collateral refers to assets that a borrower offers to a lender as security for a loan, which can be seized if the loan is not repaid according to the terms of the loan agreement.

Security Agreement

A legal document that grants a creditor a security interest in an asset or property as collateral for a loan, typically detailed in personal property.