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  • 1.  OVERHEAD ALLOCATION HELP

    Posted 04-29-2022 11:55 AM
    need help understanding this question.



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    Tayba Al-Mehdar
    Controller
    Khobar
    Saudi Arabia
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  • 2.  RE: OVERHEAD ALLOCATION HELP

    Posted 04-30-2022 02:17 AM
    High low method can use for calculating Fixed Overhead

    (200,000-80000)÷(5000-1000)=  30/per direct labor Hr
    5000 X 30 = 150,000 (total variable overhead )
    For calculating Fixed overhead =Total Overhead - Variable Overhead
    (200000 - 150000 ) = 50000

    Note.  For high-low method highest activity to be considered for calculating overhead 




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    UNNI C.S
    Accountant
    Dubai
    United Arab Emirates
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  • 3.  RE: OVERHEAD ALLOCATION HELP

    Posted 04-30-2022 05:02 AM

    Dear Tayba

    You had posted the same question a weeks ago, I think you are not following your thread after posting , 

    anyway please go through the below mentioned solutions.

    Here you need to follow two formulas 

    1. High low method Formula = (Y2-Y1)/(X2-X1)
    2. Regression Total value Formula =  Y =a+bx
    Description of 1st formula and implementation

    y2 = Highest range pick of total value  , X2= Highest range from respective line

    Y1= Lowest range of the above total 

    There are three total values of three months they are 

    Month    Total                        labor hours

    Jan -    80000.......(Y1)             1000.....(x1)

    Feb -    140000                         3000

    Mar -    200000......(Y2)             5000   (X2)

    b(variable cost per labour hour) =  (Y2-Y1) / (X2-X1)  =   (200000-80000) /  (5000-1000) = 120000/4000= 30......(1)

    The total cost of a product = Y =a+bx,  where a= fixed cost, b = variable cost per unit , x= total unit produced

    we have the data for total cost, variable units , need to calculate Fixed cost using regression formula

    Consider any of the monthly data   and convert them into an equation 

    for instance 

    Jan --- Tot cost =80000 = Y,   Total variable units = labor hours= x = 1000

    and we have already derived "b"....eq (1)
    Hence the equation can be  y = a+bx 

    80000= a+30*1000

    a= 80000-30000=50000.....(Ans)


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    G. Prasad
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