Nova Companys total overhead cost at various levels of activity are presented below:
Month MachineHours Total Overhead Cost
April $
May $
June $
July $
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the machinehour level of activity is:
Utilities variable $
Supervisory salaries fixed
Maintenance mixed
Total overhead cost $
Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
Estimate how much of the $ of overhead cost in July was maintenance cost. Hint: to do this, it may be helpful to first determine how much of the $ consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.
Using the highlow method, estimate a cost formula for maintenance in the form Y a bX
Express the companys total overhead cost in the form Y a bX
What total overhead cost would you expect to be incurred at an activity level of machinehours?
