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hello
please i am stuck on a question.F5 2007 DEC. where you are expected to work out the variable overhead and the fixed, i actually did using the high and low method, but i didnot get the answer and i do not understand it from the answer sheet. thanksThe difference between the two months is $80,000 and 4,000 hours. This must be the variable cost, and so the variable cost per hour is 80,000/4,000 = $20.
Using this for month 2, the total variable cost must be 23,000 x 20 = 460,000. So the fixed cost per month must be 700,000 – 460,000 = 240,000.
The question says that fixed overheads are absorbed on an assembly hour basis, and that there are 240,000 hours a year, which is 20,000 hours a month.
So the absorption rate for the fixed overheads is $240,000/20,000 = $12 per hour.
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