Nova Company's total overhead cost at various levels of activity are presented below: Month Machine-Hours Total Overhead
Question:
Nova Company's total overhead cost at various levels of activity are presented below:
Month | Machine-Hours | Total Overhead Cost |
---|---|---|
April | 55,000 | $200,000 |
May | 45,000 | $175,800 |
June | 65,000 | $224,200 |
July | 75,000 | $248,400 |
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 45,000 machine-hour level of activity is:
Utilities (variable) | $ 54,000 |
Supervisory salaries (fixed) | 47,000 |
Maintenance (mixed) | 74,800 |
Total overhead cost | $ 175,800 |
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 $248,400 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $248,400 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.)
Managerial Accounting
ISBN: 9780073526706
12th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer