Question

The manager at Screaming Trees has been trying to calculate the portion of the​ company's overhead expenses that is fixed and the portion that is variable. Over the past twelve​ months, the number of yards of processed was highest in​ July, when the total monthly overhead costs totaled $ 28 comma 000 for 32 comma 000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in​ October, when total overhead costs were $ 23 comma 000 for 24 comma 000 yards of mulch processed. What is the fixed portion of the monthly overhead​ expenses? (Do not round any intermediate​ calculations.)

Answer 1

Answer:

$8,000

Explanation:

For computing the fixed portion first we have to compute the variable portion using the high low method which is shown below:

Variable cost per hour = (High total monthly overhead costs - low total monthly overhead costs) ÷ (High number of yards - low number of yards)

= ($28,000 - $23,000) ÷ (32,000 yards - 24,000 yards)

= $5,000 ÷ 8,000 yards

= $0.625 per yard

Now the fixed cost equal to

= High total monthly overhead costs - (High number of yards × Variable cost per yard)

= $28,000 - (32,000 yards × $0.625)

= $28,000 - $20,000

= $8,000