Manufacturing overhead cost: let us prepare a schedule of the cost of goods manufactured to determine the manufacturing overhead cost added to production.
Manufacturing overhead cost for march:
Schedule of cost goods manufactured
Beginning balance in works in process-35000
Plus current manufacturing costs:
Direct material (5600 units x $8)44,800
Direct labor ( 5600 * $10) 56,000
Manufacturing overhead (288200-44800-56000) 1,87,400
Total (268200+55000-35000)2,88,200
Less ending balance in works in process -55,000
Cost of goods manufactured 2,68,200
Manufacturing overhead cost for June:
Schedule of cost goods manufactured
Beginning balance in works in process 27000
Plus current manufacturing costs:
Direct material (10200 units * $8) 81,600
Direct labor ( 10200 * $10)1,02,000
Manufacturing overhead (394000-81600-102000) 2,10,400
Total (403000+18000-27000) 3,94,000
Less ending balance in works in process -18,000
Cost of goods manufactured 4,03,000
High-low method: The cost equation such as variable cost and fixed cost can be calculated using the high-low method as follows;
Variable cost per unit = (Highest cost - lowest cost) /( highest level of activity - lowest level of activity)
Variable cost per unit =( 210400 - 187400) / (10200 - 5600 )= 23000 / 4600
Variable cost per unit = $5
Total variable cost at lowest activity = 5 * 5600
Total variable cost= 28000
Fixed cost = Total cost - variable cost = 187400 - 28000 = $159400
Formula
Total overhead cost = 159400 + ( 5 * number of units produced).
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