Question

In: Accounting

Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...

Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 49,000 $ 212,110 May 39,000 $ 186,210 June 59,000 $ 238,010 July 69,000 $ 263,910 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000 machine-hour level of activity is: Utilities (variable) $ 58,500 Supervisory salaries (fixed) 70,000 Maintenance (mixed) 57,710 Total overhead cost $ 186,210 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 $263,910 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $263,910 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 company’s 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 44,000 machine-hours?

Solutions

Expert Solution

1. Maintenance cost at the 69,000 machine-hour level of activity can be isolated as follows

Level Of Activity
39000 MH 69000 MH
Total factory overhead cost 186210 263910
Deduct
Utilities cost @ $1.50 per MH* 58500 103500
Supervisory salaries 70000 70000
Maintenance cost 57710 90410

* 58500 / 39000 = 1.5

2. High-low analysis of maintenance cost:

Machine Hours Maintenance cost
High level of activity 69000 90410
Low Level of activity 39000 57710
Change 30000 32700

Variable cost per unit of activity: = Change in cost / Change in activity

= 32700 / 30000

= 1.09 Per MH

Total fixed cost=

Total maintenance cost at the low activity level $ 57,710   
  Less the variable cost element
      (39,000 MHs × $1.09 per MH)
42,510
  Fixed cost element $ 15,200  

Therefore, the cost formula is $15,200 per month plus $1.09 per machine-hour or
Y = $15,200 + $1.09X

3.

Variable Rate per Machine-Hour Fixed Cost
  Maintenance cost $ 1.09    $ 15,200     
  Utilities cost 1.50          
  Supervisory salaries cost 70,000     
  Totals $ 2.59           $ 85,200     
4.  

Total overhead cost at an activity level of 44,000 machine-hours:

         
  Fixed cost $ 85,200    
  Variable costs: $2.59 per MH * 44,000 MHs 113960    
  Total overhead costs $ 199160  

Related Solutions

Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 49,000 $ 185,290 May 39,000 $ 160,190 June 59,000 $ 210,390 July 69,000 $ 235,490 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000 machine-hour level of activity is: Utilities (variable) $ 50,700 Supervisory salaries (fixed) 50,000 Maintenance (mixed) 59,490 Total overhead cost $ 160,190 Nova Company’s...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 46,000 $ 169,660 May 36,000 $ 146,060 June 56,000 $ 193,260 July 66,000 $ 216,860 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) $ 46,800 Supervisory salaries (fixed) 46,000 Maintenance (mixed) 53,260 Total overhead cost $ 146,060 Nova Company’s...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 70,000 $ 198,000 May 60,000 $ 174,000 June 80,000 $ 222,000 July 90,000 $ 246,000 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000 machine-hour level of activity is: Utilities (variable) $ 48,000 Supervisory salaries (fixed) 21,000 Maintenance (mixed) 105,000 Total overhead cost $ 174,000 Nova Company’s...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 46,000 $ 199,200 May 36,000 $ 173,200 June 56,000 $ 225,200 July 66,000 $ 251,200 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) $ 54,000 Supervisory salaries (fixed) 60,000 Maintenance (mixed) 59,200 Total overhead cost $ 173,200 Nova Company’s...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 48,000 $ 164,060 May 38,000 $ 140,860 June 58,000 $ 187,260 July 68,000 $ 210,460 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) $ 45,600 Supervisory salaries (fixed) 40,000 Maintenance (mixed) 55,260 Total overhead cost $ 140,860 Nova Company’s...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 48,000 $ 198,000 May 38,000 $ 172,000 June 58,000 $ 224,000 July 68,000 $ 250,000 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) $ 53,200 Supervisory salaries (fixed) 56,000 Maintenance (mixed) 62,800 Total overhead cost $ 172,000 Nova Company’s...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 49,000 $ 205,220 May 39,000 $ 179,420 June 59,000 $ 231,020 July 69,000 $ 256,820 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000 machine-hour level of activity is: Utilities (variable) $ 58,500 Supervisory salaries (fixed) 64,000 Maintenance (mixed) 56,920 Total overhead cost $ 179,420 Nova Company’s...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 50,000 $ 190,900 May 40,000 $ 164,400 June 60,000 $ 217,400 July 70,000 $ 243,900 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) $ 60,000 Supervisory salaries (fixed) 41,000 Maintenance (mixed) 63,400 Total overhead cost $ 164,400 Nova Company’s...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine-Hours Total...
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 $...
Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine-Hours Total...
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 $...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT