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Shak Inc has accumulated the following data for the past 5 months: Number of units total overhead...

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Accounting

Shak Inc has accumulated the following data for the past 5months:

Number of units total overhead costs

August . 2,250 $39,820

September 2,340 $38,650

October . 2,180 $37,880

November 2,080 $38,110

December 2,090 $35,830

Shak Inc, uses the high/low method of separating mixed costsinto variable  and fixed components.

Required:

A. Calculate the variable overhead costs perunit and the total fixed overhead costs.

B. If the company expects to produce 3,000 units in January,what will the estimated total overhead costbe?

Answer & Explanation Solved by verified expert
4.3 Ratings (530 Votes)

1 Variable cost = $                 2.08
2 Total Fixed overhead cost = $            33,790
3 Total overhead cost = $            40,021
Workings:
Month Units Overhead cost
High Activity = September 2340 $                              38,650
Low Activity = November 2080 $                              38,110
Difference = 260 $                                    540
Variable cost per unit = Difference in total cost / Difference in activity
= ($540) / (260)
= $                 2.08
Fixed Cost = Total cost - (Variable cost per socks X Activity)
= $38650 - ($2.08 X 2340)
= $            33,790
or = $7,800 - ($15.4 X 280)
= $            33,790
Computation of Total overhead cost for budgeted 3000 units for January:
Total overhead cost = Fixed cost + Variable cost
= $33790 + ($2.08 X 3000)
= $            40,021

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