Originally Posted by tsmithers
22230/17100 = 1.3
That's correct, but that's also all variable costs per unit and doesn't divide down into the different costs. It always worries me when someone writes an answer like that as 1.3. It's money. This means you either aren't paying attention or you don't know that the 1.3 represents money, and you should. You should always know what your answers represent. It's 1.30 per unit variable.
That's where you're starting to go wrong. 244,920 is already the total costs for the high level. 1.30 is the cost per unit for variable costs. It's already part of
the 244,920. In a way it's like saying your total grocery bill was $134.16 and the milk was $3.69 of that. And then doing 3.69 * 134.16, when the 3.69 was part of the total. As you see, there's no logic in that.
The 244,920 consists of both fixed and variable costs. The increase in costs from low to high of 22,230 can only
be caused by a change in something variable. Because fixed costs are fixed and won't change no matter what you do to volume. The change in volume (machine hours that overhead was based on) is 17,100. That change is what caused the 22,230 change in cost. So by dividing, you're figuring out the rate per machine hour that is variable. 1.30 per machine hour.
Your next step is to go back and figure out for each level how much is variable and how much is fixed. Now that you know it's 1.30 per machine hour, take both the low and the high and figure out (at 1.30/hour) what the total variable costs would be for each level. I'm kind of thinking you may have been attempting to do this, but it's not 1.30 per dollar of cost, it's 1.30 per machine hour
. Once you know the total variable for each level, you can figure out what's left over for the fixed costs.
While you are doing all this, be neat and label everything. There's a lot of numbers and pieces here and it's easy to get lost. You have to keep track of your numbers yourself - I can't do that for you.
Keep in mind that you have 3 overhead costs: indirect materials, rent and maintenance. Some of that is variable and some of that is fixed. If you have gotten the above part done, then you now know what fixed is (will be the same for all levels because it's fixed) and what the total variable is for each level. You can then figure out how much of the variable is indirect materials and how much of the fixed is rent. Pull those out and what you have left is maintenance.
See if you can work that far and see what you come up with. Long problem with lots of parts. I can't guide someone through the whole thing until you get more of it done.