Answer:
c) VOH/hr = $6 per hour
a) Fixed overhead cost = $ 15,750
Explanation:
Overhead cost is the total of all indirect costs. Indirect costs are those which are not specifically for a particular product. They include indirect material cost, indirect labour cost and indirect expenses.
Variable overhead cost is the portion of the total overhead cost which changes with activity level changes. For example, when more machine hours are worked, more kilowatts of power would be consumed and therefore increase the power cost.
Fixed overhead costs are those which remain on change within a given level of activity.
To separate the fixed overhead from the variable, we use the following relationships below:
VOH/hr = <u>Total [email protected] high activity- Total Overhead @low activity</u>
High activity - Low activity
Fixed Overhead = Total overhead @ high act. - (VOH/hr × High activity)
Note that activity level level is measured in machine hours in this question.
Total overhead = Average cost per hour × Number of hours
Now we can determine the variable overheads per machine hour (VOH/hr)
VOH/hr = <u>(3500× $10.50) - (3,000× $11.25)</u>
3,500 - 3,000 machine hours
= <u>$ (36,750 - 33750)</u>
500 hrs
= $6 per hour
Fixed overhead cost = ( 3500 ×10.50) - ($6 × 3500)
=$ 15,750
