Explore BrainMass

Management accounting: high-low method of cost estimation

ABC Company's total overhead costs at various levels of activity are presented below:

Machine Hours Total Overhead Costs
March 60,000 $216,800
April 50,000 $194,000
May 70,000 $239,600
June 80,000 $262,400

Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the 50,000 machine-hour level of activity these costs are:

Utilities (V) $ 54,000
Supervisory salaries (F) 62,000
Maintenance (M) 78,000
Total overhead cost $194,000

V = Variable; F = Fixed; M = Mixed

The company wants to break down the maintenance cost into its basic variable and fixed cost elements.


a. Estimate the maintenance cost for June.

b. Use the high-low method to estimate the cost formula for maintenance cost.

c. Estimate the TOTAL overhead cost at an activity level of 55,000 machine hours. (Note that Part C is asking about total overhead cost and not just maintenance cost)

****** Carefully label each part of your answer.

Solution Summary

The problem set deals with cost apportionment in management accounting.