Reference no: EM132815876
Question - Dubai Heavy Industries (DHI) is manufacturing company whose total manufacturing overhead costs fluctuate from year to year according to the number of machine-hours worked in its production facility. These costs at high and low levels of activity over recent years are given below:
Level of Activity Low High
Machine-hours 60,000 80,000
Total Manufacturing Overhead Costs $274,000 $312,000
The manufacturing overhead costs above consist of Indirect Materials, Rent, and Maintenance. The company has analyzed these costs at the 60,000 machine-hours level of activity as follows:
Indirect materials (Variable) $90,000
Rent (Fixed) $130,000
Maintenance (Mixed) $54,000
Total Manufacturing Overhead Costs $274,000
For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.
Required -
1. Help DHI determine their cost formula/structure.
2. What total overhead costs would you expect DHI to incur at an operating level of 65,000 machine-hours?