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  • Echeverria SA - Finding the Components of Mixed Overhead Costs
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Echeverria SA - Finding the Components of Mixed Overhead Costs - 4 Feb, 2013

Echeverria SA is an Argentinian manufacturing company whose total factory overhead costs fluctuate somewhat from year to year according to the number of machine-hours worked in its production facility. These costs (in Argentinian pesos) at high and low levels of activity over recent years are given below:

           

Level of Activity

                                                            Low                 High    

  Machine-hours                                   60,000             80,000              

  Total factory overhead costs               274,000           312,000           pesos

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 60,000 machine-hours level of activity as follows:

  

  Indirect materials (variable)     90,000 pesos

  Rent (fixed)                            130,000          

  Maintenance (mixed)  54,000

  Total factory overhead costs   274,000           pesos

           

 

For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.

Required:

 

1. Estimate how much of the factory overhead cost of 312,000 pesos at the high level of activity consists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the 312,000 pesos cost consists of indirect materials and rent. Think about the behavior of variable and fixed costs.) (Do not round intermediate calculations.)

Maintenance cost at high level of activity            pesos 

 

2. Using the high-low method, estimate a cost formula for maintenance. (X represent per machine-hour)  (Round the "Variable cost per machine-hour" to 2 decimal places and "Fixed cost" to the nearest whole number.)

  Y =                pesos  +                     peso  X

 

3. What total overhead costs would you expect the company to incur at an operating level of 65,000 machine-hours? (Do not round intermediate calculations.)

Total factory overhead cost       pesos 



Category : Management Accounting

Search Keywords :
Echeverria , Argentinean , Manufacturing , Material , Rent , Maintenance , High , Low , Fixed , Variable , Machine 


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Answer  - 4 Feb, 2013
Please see the doc attachment....


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