Question

(CO 9) The Wiscow Manufacturing Company recorded overhead costs of $14,182 at an activity level of 4,200 machine hours and $8,748 at 2,300 machine hours. The records also indicated that overhead of $9,730 was incurred at 2,600 machine hours. What is the total estimated cost for 2,600 machine hours using the high-low method to estimate the cost equation?

Answer 1

Answer:

2.86 Q + 2,170 = overhead cost

Explanation:

$\left[\begin{array}{ccc}High&4,200&14,182\\Low&2,300&8,748\\Diference&1,900&5,434\\\end{array}\right]$

We subtract one activity level from another, the result is telling us that 1,900 units generate 5,434 additional cost

That is variable cost we divide and get the unit variable cost

cost 5434 / Unis 1900 =  variable cost 2.86

Next we calcualte the fixed cost on any of both

Total Cost 14182

  Variable -12012 (4,200 x 2.86)

Fixed Cost   2170

Total Cost 8748

Variable    6578 ( 2,300 x 2.86)

Fixed Cost 2170

the cost equation would be:

2.86 Q + 2,170 = overhead cost