Prospero Corporation’s total overhead costs at various levels of activity are presented below: Month Machine-Hours Total Overhead Costs August 8,000 $119,400 September 12,000 $142,800 October 16,000 $166,200 November 4,000 $93,120 Assume that...

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Accounting

Prospero Corporation’s total overhead costs at variouslevels of activity are presented below:
Month
Machine-Hours
Total Overhead Costs
August
8,000
$119,400
September
12,000
$142,800
October
16,000
$166,200
November
4,000
$93,120
Assume that the total overhead costs above consist ofutilities, supervisory salaries, and maintenance. The breakdown ofthese costs at the 4,000 machine-hour level of activityis:
Utilities (variable)
$11,520
Supervisory salaries (fixed)
15,600
Maintenance (mixed)
66,000
Total overhead costs
$93,120
Prospero Corporation’s management wants to break downthe maintenance cost into its basic variable and fixed costelements.
Required:
(1). Estimate how much of the $166,200 of overhead costin October was maintenance cost. (Hint: to do this, it may behelpful to first determine how much of the $166,200 consisted ofutilities and supervisory salaries. Think about the behavior ofvariable and fixed costs!)
(2). Using the high-low method, estimate a cost formulafor maintenance.
(3). Express the company’s total overhead costs in thelinear equation form Y = a + bX.
(4). What total overhead costs would you expect to beincurred at an operating activity level of 15,000machine-hours?

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Answer to Requirement 1 If 4000 machine hours are used Utilities per machine hour Utilities Number of machine hours Utilities per machine hour 11520 4000 Utilities per machine hour 288 If 16000 machine hours are used Utilities Utilities per machine hour Number of machine hours Utilities 288 16000 Utilities 46080 Total See Answer

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Month	Machine-Hours	Total Overhead Costs
August	8,000	$119,400
September	12,000	$142,800
October	16,000	$166,200
November	4,000	$93,120

	Utilities (variable)	$11,520
	Supervisory salaries (fixed)	15,600
	Maintenance (mixed)	66,000
	Total overhead costs	$93,120