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
47,000
$ 194,340
May
37,000
$ 167,140
June
57,000
$ 221,540
July
67,000
$ 248,740
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 37,000 machine-hour level of activity is:
Utilities (variable)
$ 59,200
Supervisory salaries (fixed)
48,000
Maintenance (mixed)
59,940
Total overhead cost
$ 167,140
Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $248,740 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $248,740 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 42,000 machine-hours?
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