Problem 5A-8 (Algo) High-Low Method; Predicting Cost [LO5-10] Nova Company's total overhead cost at various levels...

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Problem 5A-8 (Algo) High-Low Method; Predicting Cost [LO5-10] Nova Company's total overhead cost at various levels of activity are presented below: Total Overhead Cost $ 218,000 $ 189,500 $ 246,500 $ 275,000 Month April May June July Machine-Hours 48,000 38,000 58,000 68,000 Assume the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 38,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 60,800 63,000 65,700 $ 189,500 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 $275,000 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $275,000 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 at an activity level of 43,000 machine-hours? Problem 5A-8 (Algo) High-Low Method; Predicting Cost [LO5-10] Nova Company's total overhead cost at various levels of activity are presented below: Total Overhead Cost $ 218,000 $ 189,500 $ 246,500 $ 275,000 Month April May June July Machine-Hours 48,000 38,000 58,000 68,000 Assume the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 38,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 60,800 63,000 65,700 $ 189,500 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 $275,000 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $275,000 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 at an activity level of 43,000 machine-hours?

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To answer the questions we need to perform some calculations using the highlow method Lets start by breaking down the steps needed to resolve the required tasks 1 Estimate maintenance cost for July Si... View the full answer