Accounting total overhead cost using high-low method?
ABC Co.'s total overhead costs at various levels of activities (all within the same relevant range) are presented below:
Month Flying Hours Total Overhead Costs
September 8,000 $ 92,000
October 12,000 $ 106,000
November 16,000 $ 120,000
December 4,000 $ 78,000
Assume that the total overhead costs above consist of managerial salaries, maintenance and utilities.
The breakdown of these costs at the 4,000 flying-hour level of activity is:
Managerial salaries (fixed) $
$25,000
Maintenance (mixed) $48,200
Utilities (variable) $4,800
Total overhead costs
$ 78,000
ABC Co.'s management wants to breakdown the maintenance cost into its variable and fixed cost elements.
Required:
1) Estimate how much of the $120,000 of overhead cost in November was maintenance cost.
2) Using the high-low method, estimate a cost formula for maintenance.
3) Express the company's total overhead costs in the linear equation form Y=aX+b.
4) What total overhead costs would be expected to be incurred at an operating activity level of 11,000 flying-hours?
