Board? Games, Inc. makes board games. The following data pertains to the last si
ID: 2404741 • Letter: B
Question
Board? Games, Inc. makes board games. The following data pertains to the last six? months:
Direct Labor Hours Manufacturing Overhead
Month 1: ?45,000 $295,000
Month 2: ?60,000 ?$320,000
Month 3: ?57,000 ? $323,000
Month 4: ?52,000 ?$247,250
Month 5: ?34,000 ?$178,200
Month 6: ?25,000 ?$162,500
Based on this? data, what would the estimated manufacturing overhead be at a level of? 48,000 direct labor? hours?
Explanation / Answer
The estimated manufacturing overhead be at a level of? 48,000 direct labor? hours
$ 266,000
Working:
In given question, different manufacturing overhead is given for different direct labor hours. So, in such type of questions, first of all calculate fixed costs and variable cost per unit.So, that we can calculate total cost at any level. As per high-Low method, Variable cost per direct labor hour = (A-B)/(H-L) Where, = (320000-162500)/(60000-25000) A Total cost at hiighest level of activity $ 3,20,000 = $ 4.50 B Total cost at lowest level of activity $ 1,62,500 H Highest level of activity 60,000 L Lowest level of activity 25,000 Now we calculate fixed cost as follows; Either highest level of Lowest level of 60,000 hours or 25,000 hours Total cost $ 3,20,000 $ 1,62,500 Less Variable cost $ 2,70,000 $ 1,12,500 (60000*4.50) (25000*4.50) Fixed Cost $ 50,000 $ 50,000 Fixed cost is remain same for all different level.So, fixed cost is $ 50,000 Now, formula of total cost = A+B*x Where, A Fixed Cost B Variabele cost per unit x Total level of activity So, total manufacturing cost at 48,000 direct labor hours is calculated as follows: Total Manufacturing cost = A+B*x Where, = 50000+4.50*48000 A Fixed Cost $ 50,000 = $ 2,66,000 B Variabele cost per hour $ 4.50 x Total level of activity 48,000 hours