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Nova Company's total overhead cost at various levels of activity are presented below: Total Month April May June July Machine-Hours 48,000 Overhead Cost $
Nova Company's total overhead cost at various levels of activity are presented below: Total Month April May June July Machine-Hours 48,000 Overhead Cost $ 195,080 38,000 $ 171,480 58,000 68,000 $ 218,680 $ 242,280 Assume that 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 $ 49,400 64,000 58,080 $ 171,480 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 $242,280 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $242,280 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 to be incurred at an activity level of 43,000 machine-hours?
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