High-Low Method; Predicting Cost
Echeverria SA is an Argentinian manufacturing company whose total factory overhead costs fluctuate somewhat from year to year according to number of machine-hours worked in its production facility. These costs in Argentinian pesos at high and low levels of activity over current years are provided below:
Level of Activity
Low High
Machine-hours 60,300 80,400
Total factory overhead costs 244,050 pesos 274,200 pesos
The factory overhead costs over consist of indirect materials, rent, and maintenance. The company has analyzed these costs at 60,300 machine-hours level of activity as follows:
Indirect materials (variable) 72,360 pesos
Rent (fixed) 123,000
Maintenance (mixed) 48,690
Total factory overhead costs 244,050 pesos
For planning purposes, the company needs to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Evaluate how much of the factory overhead cost of 274,200 pesos at the high level of activity consists of maintenance cost.
Maintenance cost at high level of activity pesos
2. Using the high-low method, evaluate a cost formula for maintenance. (X stand for per machine-hour.) (Round the "Variable cost per machine-hour" to 2 decimal places and "Fixed cost" to the nearest whole number. Omit "pesos" sign in your response.)
Y = pesos + peso X
3. Find what total overhead costs would you expect the company to incur at an operating level of 66,330 machine-hours?