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Nova Companys total overhead cost at various levels of activity are presented below: ...

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Accounting

Nova Companys total overhead cost at various levels of activity are presented below:

Month Machine-Hours Total Overhead Cost
April 50,000 $ 205,500
May 40,000 $ 180,300
June 60,000 $ 230,700
July 70,000 $ 255,900

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 40,000 machine-hour level of activity is:

Utilities (variable) $ 56,000
Supervisory salaries (fixed) 61,000
Maintenance (mixed) 63,300
Total overhead cost $ 180,300

Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.

Required:

1. Estimate how much of the $255,900 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $255,900 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.)

2. Using the high-low method, estimate a cost formula for maintenance in the form Y = a + bX.

3. Express the companys total overhead cost in the form Y = a + bX.

4. What total overhead cost would you expect to be incurred at an activity level of 45,000 machine-hours?

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