Question

Nova Company’s total overhead cost at various levels of activity are presented below:

Month	Machine-Hours	Total Overhead Cost
April	50,000	$184,400
May	40,000	$160,000
June	60,000	$208,800
July	70,000	$233,200

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 40,000 machine-hour level of activity is:

Utilities (variable)	$	52,000
Supervisory salaries (fixed)		45,000
Maintenance (mixed)		63,000
Total overhead cost	$	160,000
Nova Company’s management wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $233,200 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $233,200 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) maintenance cost in July____________ HIgh activity level ?????? ?????? Low activity level ????? ???? Change ?????? Variable cost element per Mh Fixed Cost element Y= ____ +_____X 3. Express the company’s 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.) Variable cost per Machine hour Fixed Cost Utilities cost Supervisory Salary Cost Maintenance cost Total Overhead Cost Y=____+ ___ X 4 What total overhead cost would you expect to be incurred at an activity level of 45,000 machine-hours? (Do not round intermediate calculations.) Total overhead cost ___________

Answer 1

		Month	Machine Hours	Total OH Cost
		April	50000	184400
		May	40000	160000
		June	60000	208800
		July	70000	233200
		Breaking the cost at 40000 MH Level:
		May	40000	160000
			Particulars	V/F	Amt	Cost at Per MH
			Utilities	V	52000	1.30
			Supervisior Salary	F	45000
			Maintainance	Mixed	63000
			Total		160000
	A	July	70000	233200
			Particulars	V/F	Amt
			Utilities	V	91,000	(1.30*70000)
			Supervisior Salary	F	45000	Remains same
			Total		136000
			Maintainance	Mixed	97200	(232200-136000)
		June	60000	208800
			Particulars	V/F	Amt
			Utilities	V	78,000	(1.30*60000)
			Supervisior Salary	F	45000	Remains same
			Total		123000
			Maintainance	Mixed	85800	(208800-123000)
			High Activity Level	70000	97200
			Low Activity Level	60000	85800
			Change	10000	11400
			Variable Cost PMH		1.14	(11400/10000)
			Total Variable cost at 60000		68400
			Total Fixed Cost at 60000		17400
			Y=17400+1.14X
				Variable Cost
	B		Particulars	Per MH	Fixed Cost
			Utilities	1.30	-
			Supervisior Salary	-	45000
			Maintainance	1.14	17400
			Total	2.44	62400
			Y=62400+2.44X
	C		Machine Hours	45000
			Total Cost relatioship is as follows:
			Y=62400+2.44X
			Y=62400+2.44(45000)
			172200