Question
Nova Companys total overhead cost at various levels of activity are presented below: Month Machine-Hours Total Overhead Cost April 70,000 $198,000 May 60,000 $174,000 June
Nova Companys total overhead cost at various levels of activity are presented below: |
Month | Machine-Hours | Total Overhead Cost |
April | 70,000 | $198,000 |
May | 60,000 | $174,000 |
June | 80,000 | $222,000 |
July | 90,000 | $246,000 |
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000 machine-hour level of activity is: |
Utilities (variable) | $ | 48,000 |
Supervisory salaries (fixed) | 21,000 | |
Maintenance (mixed) | 105,000 | |
Total overhead cost | $ | 174,000 |
Nova Companys 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!) (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.) |
4. | What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours? (Do not round intermediate calculations.) |
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