Reference no: EM131795146

Problem

Amfac Company manufactures a single product. The company keeps careful records of manufacturing activities from which the following information has been extracted: Level of Activity

                                                             March-Low             June-High
Number of units produced                        6,000                    9,000
Cost of goods manufactured                    $168,000               $257,000
Work in process inventory, beginning        $9,000                  $32,000
Work in process inventory, ending            $15,000                $21,000
Direct materials cost per unit                    $6.00                   $10.00
Direct labor cost per unit                          $6.00                   $10.00
Manufacturing overhead cost, total            ?                          ?

The companys manufacturing overhead cost consists of both variable and fixed cost elements. To have data available for planning, management wants to determine how much of the overhead cost is variable with units produced and how much of it is fixed per month.

Required:

1. For both March and June, estimate the amount of manufacturing overhead cost added to production. The company had no underapplied or overapplied overhead in either month. (Hint: A useful way to proceed might be to construct a schedule of cost of goods manufactured.)

2. Using the high-low method, estimate a cost formula for manufacturing overhead. Express the variable portion of the formula in terms of a variable rate per unit of product.

3. If 7,000 units are produced during a month, what would be the cost of goods manufactured? (Assume that work in process inventories do not change and that there is no underapplied or overapplied overhead cost for the month.)