Bob Jones owns a catering company that stages banquets and parties for both indi
ID: 2414892 • Letter: B
Question
Bob Jones owns a catering company that stages banquets and parties for both individuals and companies. The business is seasonal, with heavy demand during the summer months and year-end holidays and light demand at other times. Bob has gathered the following cost information from the past year: Month Labor Hours Overhead Costs January 2,500 $52,000 February 2,800 59,000 March 3,000 60,000 April 4,200 64,000 May 4,500 67,000 June 5,500 71,000 July 6,500 74,000 August 7,500 77,000 September 7,000 75,000 October 4,500 68,000 November 3,100 62,000 December 6,500 73,000 Total 57,600 $802,000 Collapse question part (a) Using the high-low method, compute the overhead cost per labor hour and the fixed overhead cost per month
Explanation / Answer
Month Labour Hours Overhead Costs January 2,500.00 52,000.00 Lowest February 2,800.00 59,000.00 March 3,000.00 60,000.00 Apri 4,200.00 64,000.00 May 4,500.00 67,000.00 June 5,500.00 71,000.00 July 6,500.00 74,000.00 August 7,500.00 77,000.00 Highest Sep 7,000.00 75,000.00 Oct 4,500.00 68,000.00 Nov 3,100.00 62,000.00 Dec 6,500.00 73,000.00 57,600.00 802,000.00 Cost at highest level of activity 77,000.00 Cost at Lowest level of activity 52,000.00 Highest level of activity 7,500.00 Lowest Level of activity 2,500.00 O/H cost per hr = (77000-52000)/(7500-2500) O/H cost per hr = 25000/5000 O/H cost per hr = 5 Fixed Costs = TC - VC FC = 77000 - 7500*5 FC = 77000 - 37500 FC = 39,500