Question
Nova Companys total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 55,000 $ 183,500 May 45,000
Nova Companys total overhead cost at various levels of activity are presented below:
Month | Machine- Hours | Total Overhead Cost | |||
April | 55,000 | $ | 183,500 | ||
May | 45,000 | $ | 160,500 | ||
June | 65,000 | $ | 206,500 | ||
July | 75,000 | $ | 229,500 | ||
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 45,000 machine-hour level of activity is:
Utilities (variable) | $ | 54,000 |
Supervisory salaries (fixed) | 40,000 | |
Maintenance (mixed) | 66,500 | |
Total overhead cost | $ | 160,500 |
Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $229,500 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $229,500 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.
4. What total overhead cost would you expect to be incurred at an activity level of 50,000 machine-hours?
- Required 1
Estimate how much of the $229,500 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $229,500 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.) (Do not round intermediate calculations.)
- Required 2
Using the high-low method, estimate a cost formula for maintenance in the form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)
Y = _____ + _____ X
- Required 3
Express the companys total overhead cost in the form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)
Variable Cost per Machine Hour Fixed Cost
Utilities Cost
Supervisory Salaries Cost
Maintenance Cost
Total Overhead Cost
Y=_____ + ______ X
- Required 4
What total overhead cost would you expect to be incurred at an activity level of 50,000 machine-hours? (Do not round intermediate calculations.)
Total Overhead Cost =
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