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
45,000
$ 182,900
May
35,000
$ 158,500
June
55,000
$ 207,300
July
65,000
$ 231,700
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 35,000 machine-hour level of activity is:
Utilities (variable)
$ 42,000
Supervisory salaries (fixed)
58,000
Maintenance (mixed)
58,500
Total overhead cost
$ 158,500
Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $231,700 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $231,700 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 40,000 machine-hours?
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