Nova Companys total overhead cost at various levels of activity are presented below:
| Month | Machine- Hours | Total Overhead Cost |
| April | | 46,000 | | $ | 184,460 |
| May | | 36,000 | | $ | 160,360 |
| June | | 56,000 | | $ | 208,560 |
| July | | 66,000 | | $ | 232,660 |
|
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 36,000 machine-hour level of activity is:
| | | |
| Utilities (variable) | $ | 43,200 |
| Supervisory salaries (fixed) | | 54,000 |
| Maintenance (mixed) | | 63,160 |
| Total overhead cost | $ | 160,360 |
|
Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $232,660 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $232,660 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 41,000 machine-hours?
