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Question - Manitoba Factory makes metal pipes for building. The company's accountant likes to estimate overhead costs for the year 2022. To help him understand how costs behave in the company's manufacturing process he wants to separate fixed from variable costs. Data for the past six months are as follows:
Month
Overhead cost
Machine hours
July
$17,226
485
August
16,848
420
September
17,329
426
October
19,570
520
November
21,882
640
December
20,908
562
Required -
1. Using the high low method, calculate the fixed cost component of overhead and the variable rate per machine hour.
2. What would be the cost formula that can be used to calculate total overhead cost?
3. Assume that 775 hours of machine hours are likely to be used in the month, what would be the total overhead cost based on the above calculations.
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