Question

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

Month	Machine-Hours	Total Overhead Cost
April	48,000	$196,100
May	38,000	$170,600
June	58,000	$221,600
July	68,000	$247,100

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 38,000 machine-hour level of activity is:

Utilities (variable)	$	57,000
Supervisory salaries (fixed)		54,000
Maintenance (mixed)		59,600
Total overhead cost	$	170,600

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 $247,100 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $247,100 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)

        

2.	Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

        
        

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.)

        
        

4.	What total overhead cost would you expect to be incurred at an activity level of 43,000 machine-hours? (Do not round intermediate calculations.)

     

Answer 1