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In the solution of the exercise the ‘variable production overhead is (30/60)x 20. Could you please tell me where is the 20 coming from? Thank you in advance
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TriantafillosPlease don’t refer to a question just by a page number (you don’t even say which book it is!) – refer to it by the exam that it is from (in the case December 2007).
The overheads are semi-variable, and therefore you need to use the high-low approach to determine the variable cost per hour (and the fixed cost, which is then absorbed on an hourly basis). The variable cost per hour is therefore (700,000 – 620,000)/(23,000 – 19,000) = $20.
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