Problem 6A-8 High-Low Method; Predicting Cost [LO6-10]

Nova Companys total overhead cost at various levels of activity are presented below:

Month	Machine- Hours			Total Overhead Cost
April		52,000		$	203,580
May		42,000		$	179,680
June		62,000		$	227,480
July		72,000		$	251,380

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 42,000 machine-hour level of activity is:

Utilities (variable)	$	54,600
Supervisory salaries (fixed)		65,000
Maintenance (mixed)		60,080
Total overhead cost	$	179,680

Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.

Required:

1. Estimate how much of the $251,380 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $251,380 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 companys total overhead cost in the form Y = a + bX.

4. What total overhead cost would you expect to be incurred at an activity level of 47,000 machine-hours?

Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 Required 4 Estimate how much of the $251,380 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $251,380 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.) (Do not round intermediate calculations.) ain tenance cost in July Required 1 Required 2>