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

 

Month	Machine- Hours			Total Overhead Cost
April		51,000		$	181,310
May		41,000		$	158,210
June		61,000		$	204,410
July		71,000		$	227,510

 

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 41,000 machine-hour level of activity is:

 

Utilities (variable)	$	49,200
Supervisory salaries (fixed)		51,000
Maintenance (mixed)		58,010
Total overhead cost	$	158,210

 

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 $227,510 of overhead cost in July was maintenance cost. ( Hint: to do this, it may be helpful to first determine how much of the $227,510 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 46,000 machine-hours?

 

Answer rating: 100% (QA)

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