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

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:

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 $246,000 of overhead cost in July was maintenance cost.

2. Using the high-low method, estimate a cost formula for maintenance.

3. Express the company’s total overhead cost in the linear equation form Y = a +. bX

4. What total overhead cost would you expect to be incurred at an operating activity level of 75,000 machine-hours?

Transcribed Image Text:

Total Machine- Overhead Month Hours Cost April $198,000 70,000 $174,000 May 60,000 $222,000 June 80,000 July $246,000 90,000