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Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year....

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Accounting

Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months.

Month Total Overhead Machine Hours
Jan. $ 6,320 1,990
Feb. 6,680 2,100
Mar. 6,020 1,750
Apr. 5,590 1,600
May 6,060 1,870
June 6,370 2,020

Using the high-low method, total monthly fixed overhead cost is calculated to be:

  • $2,102.

  • $1,821.

  • $1,893.

  • $1,707.

  • $2,028.

PART TWO

Maintenance expenses of a company are to be analyzed for purposes of constructing a flexible budget. Examination of past records disclosed the following costs and volume measures:

Highest Lowest
Cost per month $ 48,000 $ 40,000
Machine hours 55,000 39,000

Using the high-low technique, estimate the annual fixed cost for maintenance expenditures:

  • $465,000.

  • $248,000.

  • $402,000.

  • $258,000.

  • $246,000.

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