50.1K

Verified Solution

Link Copied!

Question 1: Nova Companys total overhead cost at various levels of activity are presented below:

Month	Machine-Hours	Total Overhead Cost
April	55,000	$201,650
May	45,000	$176,750
June	65,000	$226,550
July	75,000	$251,450

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 45,000 machine-hour level of activity is:

Utilities (variable)	$	63,000
Supervisory salaries (fixed)		50,000
Maintenance (mixed)		63,750
Total overhead cost	$	176,750

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

Required:

1.	Estimate how much of the $251,450 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $251,450 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)

2.	Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

3.	Express the companys total overhead cost in the linear equation form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

4.	What total overhead cost would you expect to be incurred at an activity level of 50,000 machine-hours? (Do not round intermediate calculations.)

Answer & Explanation Solved by verified expert

See Answer