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Nova Companys total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 52,000 $ 172,440 May 42,000

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

Month Machine- Hours Total Overhead Cost
April 52,000 $ 172,440
May 42,000 $ 150,240
June 62,000 $ 194,640
July 72,000 $ 216,840

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) $ 46,200
Supervisory salaries (fixed) 41,000
Maintenance (mixed) 63,040
Total overhead cost $ 150,240

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

Required:

1. Estimate how much of the $216,840 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $216,840 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.

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

Variable Cost per Machine- Hour Fixed Cost Utilities cost Supervisory salaries cost Maintenance cost Total overhead cost $ 0.00 $ Y=

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