Problem 1-20A High-Low Method; Predicting Cost [LO1-4, LO1-5] Nova Companys 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 Companys 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 companys 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.)