Demetillo, Angel Marie MANACC330-C08 August 31,2021
Emnace, Cheveem Grace
Nepomuceno, Jenica Chloe
Problem 3-15
1. Estimate how much of the ¥ 17,625,000 factory overhead cost at the high level of activity
consists of maintenance cost.
Maintenance cost at the 75,000 direct labor-hour level of activity can be isolated as follows:
Level of Activity
50,000 DLH 75,000 DLH
Total factory overhead cost ¥14,250,000 ¥17,625,000
Deduct:
Indirect materials @ ¥100 per DLH* 5,000,000 7,500,000
Rent 6,000,000 6,000,000
Maintenance Cost ¥3,250,000 ¥4,125,000
* ¥5,000,000 / 50,000 DLH = ¥100 per DLH
2. Using the high-low methos, estimate a cost formula for maintenance.
High-low analysis of maintenance cost:
Direct Labor Hours Maintenance Cost
High Level of activity 75,000 ¥4,125,000
Low level of activity 50,000 3,250,000
Change 25,000 ¥ 875,000
Variable cost element:
Change in cost / Change in activity = ¥875,000 / 25,000 DLH = ¥35 per DLH
Fixed Cost element:
Total cost at the high level of activity ¥4,125,000
Less variable cost element
(75,000 DLH x ¥35 per DLH) 2,625,000
Fixed cost element ¥1,500,000
Therefore, the cost formula for maintenance is ¥1,500,000 per year plus ¥35 per direct labor-
hour or
Y = ¥1,500,000 + ¥35X
3.Total factory overhead cost at 70,000 direct labor hours would be:
Indirect material
(70,000 DLH x ¥100 per DLH) ¥7,000,000
Rent 6,000,000
Maintenance:
Variable cost element
(70,000 DLH x ¥35 per DLH) ¥2,450,000
Fixed cost element 1,500,000 3,950,0000
Total factory overhead cost ¥16,950,000
Demetillo, Angel Marie MANACC330-C08 August 31,2021
Emnace, Cheveem Grace
Nepomuceno, Jenica Chloe
Problem 3-16
1. Using the high-low method, estimate a cost formula for shipping expense.
Cost at the high activity level−Cost at the low activity level
Variable cost =
High activity level−Low activity level
$ 210,000−$ 119,000
Variable cost =
20,000−10,000
$ 91,000
Variable cost =
10,000
Variable cost = $9.1 per units sold
Fixed cost element = Total cost – Variable cost element
Fixed cost element = $210,000 – ($9.1 per unit x 20,000 units)
Fixed cost element = $28,000
Cost Formula: Y = $28,000 + $9.1X, where Y is the shipping expense and X is the number of
units sold
2. In the first quarter of Year 3, the company plans to sell 12,000 units at a selling price of $100
per unit. Prepare a contribution format income statement for the quarter.
Milden Company
Budgeted Income Statement
For the First Quarter, Year 3
Sales $1,200,000
Less: Variable Expenses
Cost of Goods Sold $420,000
Sales Commission 72,000
Shipping Expense 109,200 (601,200)
Contribution Margin $598,800
Less: Fixed Expenses
Advertising Expense 210,000
Shipping Expense 28,000
Administrative Salaries 145,000
Insurance Expense 9,000
Demetillo, Angel Marie MANACC330-C08 August 31,2021
Emnace, Cheveem Grace
Nepomuceno, Jenica Chloe
Depreciation Expense 76,000 (468,000)
Net Operating Income $130,800
Problem 3-17
1. Estimate how much of the $246,0000 of overhead cost in July was maintenance cost.
60,000 mh 90,000 mh
Total Factory Overhead Cost $174,000 $246,000
Less:
Utilities Cost (Variable) 48,000 72,000
Supervisory Salaries (Fixed) 21,000 21,000
Maintenance Cost $105,000.00 $153,000.00
2. Using the High-Low Method, estimate a cost formula for maintenance.
$ 153,000−$ 105,000 $ 48,000
Variable cost rate= = =$ 1.60 per machine hours
90,000 mh−60,000 mh 30,000 mh
¿ Cost at Highest Activity=$ 153,000− ( $ 1.60 x $ 90,000 ) =$ 9,000
¿ Cost at Lowest Activity=$ 105,000−( $ 1.60 x $ 60,000 )=$ 9,000
Y =$ 9,000+ $ 1.60 per machine hour
3. Express the company’s total overhead cost in the linear form Y = a + bx.
Variable Cost per machine hour Fixed Cost
Utilities Cost (Variable) $ 0.80
Supervisory Salaries (Fixed) $ 21,000.00
Maintenance Cost $ 1.60 $ 9,000.00
Total Overhead Cost $ 2.40 $ 30,000.00
Y =$ 30,000+ $ 2.40 per machine hour
4. What total overhead cost would you expect to be incurred at an operating activity level of 75,000
machine-hours?
Variable Cost (75,000 mh x $2.40) $ 180,000.00
Fixed Cost 30,000.00
Total Overhead Cost $ 210,000.00
Problem 3A-1
1. Using least-squares regression, estimate the fixed cost and variable cost elements of
monthly car wash costs. The fixed cost element should be estimates to the nearest
dollar and the variable cost to the nearest cent.
Y = 1,492 + 4.04x
Problem 3A-5
1. Using the least-squares regression method, estimate a cost formula for shipping expense.
Microsoft Excel was used to compute the slope and the intercept of the least-squares regression
line.
Using the least-squares regression method for estimating a linear relationship equation,
which is
Y=a +b X, wherein a represents the intercept or the total fixed cost and b represent the slope or
the variable cost per unit, the cost formula for shipping expense is Y = $30,000 + $9X, where X
is the number of units sold.
Note that the RSQ which is 99.8 % is the proportion of the variance in the dependent variable
that is predictable from independent variable, therefore 99.8% of the shipping expense is
explained by the number of units sold.
2. In the first quarter of year 3, the company plans to sell 12,000 units at a selling price of
$100 per unit. Prepare a contribution format for income statement.
Milden Company
Income Statement
For the First Quarter of Year 3
Sales (12,000 x $100) $ 1,200,000.00
Less: Variable expenses
COGS (12,000 X $35) $ 420,000.00
sales commission 6% of sales 72,000.00
Shipping expense (variable portion) 12,000 x $9 108,000.00 600,000.00
Contribution Margin $ 600,000.00
Less: Fixed Expenses
Advertising expenses $ 210,000.00
Administrative salaries 145,000.00
Insurance expense 9,000.00
Shipping expense (fixed portion) 30,000.00
Depreciation expense 76,000.00 $ 470,000.00
Net operating Income $ 130,000.00
Problem 3A-6
1.Using the least squares regression method, estimate a cost formula for utilities.
The least-squares regression method:
Excel is used to compute the slope and intercept of the least-squares regrewssion line for the
above data. The results are:
Hence, the variable cost of power per scan is $18,18 and the fixed cost of power is $1,171 per
month and the cost formula is:
Y = $1,171 + $18.18X.
*Note that the R2 is 0.97, which means that 97% of the variation in utilities cost is explained by
the number of scans. This is a very high R2 and indicates a very good fit.
2.Refer to the graph prepared in part 2 of Problem 3-14. Explain why in this case the high-low
method would be the least accurate of the three methods in deriving a cost formula.
As shown in the graph in part (2) of problem 5-17, the high and low points in this case
fall in such a way they are not representative of all points of cost data. A regression line drawn
through these two points would be too steep and thus result in an inaccurate cost formula. This is
the major defect in the high-low method; although it is simple to apply, the manager must be
careful in its use or misleading information may result.
