Question

X Company uses the high-low method to predict monthly overhead costs. The following were January and March cost and activity results:

	OH Cost	Production
January	$6,965	1,250
March	$15,414	4,800

If December production is expected to be 3,450 units, what are expected total fixed overhead costs in December [round unit costs to two decimal places]?

Answer 1

Change in Overhead cost

High = $15,414

Low = $6,965

Change = $8,449

Change in Production units

High = 4,800 units

Low = 1,250 units

Change = 3,550 units

Variable cost per unit

Therefore, the Variable cost per unit = Change in overhead costs / Change in production units

= $8,449 / 3,550 units

= $2.38 per unit

The expected total fixed overhead costs in December

The expected total fixed overhead costs in December = Total costs – Total variable costs

= $15,414 – [4,800 units x $2.38 per unit]

= $15,414 - $11,424

= $3,990

“Hence, the expected total fixed overhead costs in December will be $3,990”