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Angie March owns a catering company that stages banquets and parties for both individuals and companies
Angie March owns a catering company that stages banquets and parties for both individuals and companies. The business is seasonal, with heavy demand during the summer months and year-end holidays and light demand at other times. Angie has gathered the following cost information from the past year:
Month labor hours overhead cost
January 3,600 $65,320
February 2,900 62,320
March 3,000 63,320
April 4,100 67,320
May 4,400 70,320
June 5,600 74,320
July 7,900 83,320
August 7,600 80,320
September 6,500 75,320
October 4,600 71,320
November 3,200 65,320
December 6,600 76,320
Total 60,000 $854,840
B. Angie has booked 4,200 labor hours for the coming month. How much overhead should she expect to incur?
C. If Angie books one more catering job for the month, requiring 350 labor hours, how much additional overhead should she expect to incur?
Expert Solution
B) Computation of Overhead she should expect to incur:
Using high-low method;
Variable Overhead Cost per Labor Hour = (Cost at highest level - Cost at lowest level)/(Labor hours at highest level - Labor hours at lowest level)
= (83320-62320)/(7900-2900)
= 21000/5,000
= $4.20 per labor hour
Fixed cost = Total costs - Variable costs
= 83,320 - 4.20*7900
= 83320 - 33,180
= $50,140
Overhead Expected = Variable cost + Fixed cost
= 4.20*4200 + 50,140
= 17,640 + 50,140
Overhead Expected = 67,780
c) Computation of Additional Overhead she should incur:
Additional Overhead = 350 labor hours * $4.20 = $1,470
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