Nova Company’s total overhead costs at various levels of activity follow:

Month	Machine-Hours		Total Overhead Costs
April	75,000		$	208,000
May	109,500			280,000
June	90,000			232,000
July	100,000			247,000

Assume that the total overhead costs consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 75,000 machine-hour level of activity is as follows:

Utilities (V)	$	49,000
Supervisory salaries (F)		22,000
Maintenance (M)		137,000
Total overhead costs	$	208,000

V = variable; F = fixed; M = mixed.

Nova Company’s management wants to break the maintenance cost down into its basic variable and fixed cost elements.

Required:

1. As shown, overhead costs in May amounted to $280,000. Determine how much of this consisted of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $280,000 consisted of utilities and supervisory salaries. Think about the behaviour of variable and fixed costs!) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

2. By means of the high–low method, estimate a cost formula for maintenance. (Do not round intermediate calculations. Round "Fixed cost" answer to the nearest whole dollar and "Variable cost" answer to 2 decimal places.)

Y= a + b X

3. Express the company’s total overhead costs in the linear equation form Y = a + bX. (Do not round intermediate calculations. Round "Fixed cost" answer to the nearest whole dollar and "Variable cost" answer to 2 decimal places.)

Y= a + bX

4. What total overhead costs would you expect to be incurred at an operating activity level of 70,000 machine-hours? At an operating activity level of 85,000 machine-hours? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

70000 hrs=

85000 hrs=

Answer rating: 100% (QA)

Nova Company 1 As shown overhead costs in May amounted to 280000 Determine how much of this consiste... View the full answer