The manager at Screaming Trees has been trying to calculate the portion of the company's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of yards of processed was highest in July, when the total monthly overhead costs totaled $ 28 comma 000 for 32 comma 000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in October, when total overhead costs were $ 23 comma 000 for 24 comma 000 yards of mulch processed. What is the fixed portion of the monthly overhead expenses? (Do not round any intermediate calculations.)

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andromache andromache · Answer 1 · 2020-04-24T06:13:36+02:00

Answer:

$8,000

Explanation:

For computing the fixed portion first we have to compute the variable portion using the high low method which is shown below:

Variable cost per hour = (High total monthly overhead costs - low total monthly overhead costs) ÷ (High number of yards - low number of yards)

= ($28,000 - $23,000) ÷ (32,000 yards - 24,000 yards)

= $5,000 ÷ 8,000 yards

= $0.625 per yard

Now the fixed cost equal to

= High total monthly overhead costs - (High number of yards × Variable cost per yard)

= $28,000 - (32,000 yards × $0.625)

= $28,000 - $20,000

= $8,000