PROBLEM 5A-8 High-Low Method; Predicting Cost LO5-10 Nova Company's total overhead cost at various levels of activity are presented below: Total Overhead Machine- Month Cost Hours April..... May $198,000 $174,000 $222,000 $246,000 70,000 60,000 ... .. June. 80,000 July 90,000 Cost-Volume-Profit Relationships Assume that the total overhead cost above consists of utilities, supervisory salaries, and main- tenance. The breakdown of these costs at the 60,000 machine-hour level of activity is: Utilities (variable).... Supervisory salaries (fixed) Maintenance (mixed).. $ 48,000 21,000 105,000 ....... $174,000 Total overhead cost. 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 $246,000 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $246,000 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. What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours? 4