Transcribed Text
The Ramon Company is a manufacturer that is interested in developing a cost formula to estimate
the fixed and variable components of its monthly manufacturing overhead costs. The company
wishes to use machine-hours as its measure of activity and has gathered the data below for this
year and last year:
Last Year
This Year
Machine- Overhead Machine- Overhead
Month
Hours
Costs
Hours
Costs
January
21,000
$84,000
21,000
$86,000
February
25,000
$99,000
24,000
$93,000
March
22,000
$89,500
23,000
$93,000
April
23,000
$90,000
22,000
$87,000
May
20,500
$81,500
20,000
$80,000
June
19,000
$75,500
18,000
$76,500
July
14,000
$70,500
12,000
$67,500
August
10,000
$64,500
13,000
$71,000
September
12,000
$69,000
15,000
$73,500
October
17,000
$75,000
17,000
$72,500
November
16,000
$71,500
15,000
$71,000
December
19,000
$78,000
18,000
$75,000
The company leases all of its manufacturing equipment. The lease arrangement calls for a flat
monthly fee up to 19,500 machine-hours. If the machine-hours used exceeds 19,500, then the fee
becomes strictly variable with respect to the total number of machine-hours consumed during the
month. Lease expense is a major element of overhead cost.
Required:
1. Using the high-low method, estimate a manufacturing overhead cost formula based on the data
given above for last year and this year. (Do not round your intermediate calculations.
Round the Variable cost per DLH to 2 decimal places.)
Machine-Hours
Overhead-Costs
High level of activity
Low level of activity
Change
Variable cost element
per DLH
Fixed cost element4. Assume that the company consumes 22,500 machine-hours during a month. Using the high-
low method, estimate the total overhead cost that would be incurred at this level of activity. Be
sure to consider only the data points contained in the relevant range of activity when
performing
your computations. (Do not round intermediate calculations.)
Total overhead cost[The following information applies to the questions displayed below.)
Delph Company uses a job-order costing system and has two manufacturing departments-Molding and
Fabrication. The company provided the following estimates at the beginning of the year:
Molding
Fabrication
Total
Machine-hours
20,000
30,000
50,000
Fixed manufacturing overhead costs
$700,000
$210,000
$ 910,000
Variable manufacturing overhead per machine-hour
$
3.00
$
3.00
During the year, the company had no beginning or ending inventories and it started, completed, and sold
only two jobs-Job D-70 and Job C-200. It provided the following information related to those two jobs:
Job D-70:
Molding
Fabrication
Total
Direct materials cost
$ 375,000
$ 325,000
$ 700,000
Direct labor cost
$ 200,000
$ 160,000
$ 360,000
Machine-hours
14,000
6,000
20,000
Job C-200:
Molding
Fabrication
Total
Direct materials cost
$ 300,000
$ 250,000
$ 550,000
Direct labor cost
$ 175,000
$ 225,000
$ 400,000
Machine-hours
6,000
24,000
30,000
Delph had no overapplied or underapplied manufacturing overhead during the year.
1.
.
Assume Delph uses a plantwide overhead rate based on machine-hours.
Required:
1-a. Compute the predetermined plantwide overhead rate. (Round your answer to 2 decimal places.)
Predetermined overhead rate
per MH
1-b. Compute the total manufacturing costs assigned to Job D-70 and Job C-200. (Round your
intermediate calculations to 2 decimal places.)
Total
manufacturing
cost
Job D-70
Job C-2001-c. If Delph establishes bid prices that are 150% of total manufacturing costs, what bid price would
it
have
established for Job D-70 and Job C-200? (Round your intermediate calculations to 2 decimal
places.)
Bid price
Job D-70
Job C-200
1-d. What is Delph's cost of goods sold for the year? (Round your intermediate calculations to 2
decimal places.)
Cost of goods sold
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Part 1
Step 1: State the formula(s)
In this case, we are supposed to estimate a manufacturing overhead cost formula using the high –low method. The equation for cost volume is:
y = a + bx
where;
a = Total fixed cost
b = Variable cost per unit
However, you need to ascertain the variable cost per unit and the fixed cost per unit before you can show the cost volume equation. The formula for variable cost per unit is:
Variable Cost per Unit = (y2 − y1)/(x2 − x1)
Where;
y2 = total cost at the highest activity level
y1 = total cost at lowest activity level...