Reference no: EM133093242

Question - You just been hired by Dubai Heavy Industries (DHI) as assistant manager of manufacturing. DHI is a manufacturing company whose total manufacturing overhead costs fluctuate somewhat from year to year according to the number of machine-hours worked in its production facility. Your accountant provided you with total manufacturing overhead costs & working machine hours at high and low levels of activity over recent years:

Level of Activity

Low High Machine-hours (# of hours) 60,000 80,000

Total Manufacturing Overhead Costs $274,000 $312,000You examined those overhead costs and found out that they consist of Indirect Materials, Rent, and Maintenance. After analysis of these costs at the 60,000 machine-hours level of activity you found it as follows:

Indirect materials (Variable) $90,000Rent (Fixed) $130,000

Maintenance (Mixed) $54,000Total Manufacturing Overhead Costs $274,000

For planning purposes, you want to break down the maintenance cost into its variable and fixed cost elements. In order to do that you need to:

Required -

1) Estimate how much of the Manufacturing Overhead Cost of $312,000 at the high level of activity consists of maintenance cost.

2) Use the high-low method to estimate the variable & fixed Maintenance Costs.

3) Estimate the total manufacturing overhead costs would DHI incur in the coming year if it were to operate at a level of 65,000 machine-hours?