Problems:

1. During the months of April through September, the following total utility costs were paid at various production volumes:

Please see photo attached for production volumes.

a. Use the high-low method to calculate the cost formula utility costs.

b. If the production volume were expected to be 22,000 units for the month of November, what amount of total costs would be expected?

2. Erca, Inc. produces automobile bumpers. Overhead is applied on the basis of machine hours required for cutting and fabricating. A predetermined overhead application rate of $15.00 per machine hour was established for 2010.

(a.) If 9,000 machine hours were expected to be used during 2010, how much overhead was expected to be incurred?

(b.) Actual overhead incurred during 2010 totaled $135,000, and 9,200 machine hours were used during 2010. Calculate the amount of over-or underapplied overhead for 2010.

(c.) Explain the accounting necessary for the over- or underapplied overhead for the year.