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?
