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Nova Company's total overhead cost at various levels of activity are presented below: Total Overhead Machine- Month Hours Cost April 51,000 $ 189,740 May
Nova Company's total overhead cost at various levels of activity are presented below: Total Overhead Machine- Month Hours Cost April 51,000 $ 189,740 May 41,000 $163,340 June July 61,000 $216,140 71,000 $242,540 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 41,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 57,400 41,000 64,940 $163,340 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 $242,540 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $242,540 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 46,000 machine-hours?
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