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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 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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