Question
Nova Companys total overhead cost at various levels of activity are presented below: Month Machine- Hours Total Overhead Cost April 54,000 $ 220,220 May 44,000
Nova Companys total overhead cost at various levels of activity are presented below:
Month | Machine- Hours | Total Overhead Cost | |||
April | 54,000 | $ | 220,220 | ||
May | 44,000 | $ | 194,420 | ||
June | 64,000 | $ | 246,020 | ||
July | 74,000 | $ | 271,820 | ||
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 44,000 machine-hour level of activity is:
Utilities (variable) | $ | 66,000 |
Supervisory salaries (fixed) | 64,000 | |
Maintenance (mixed) | 64,420 | |
Total overhead cost | $ | 194,420 |
Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $271,820 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $271,820 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 49,000 machine-hours?
Estimate how much of the $271,820 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $271,820 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.) (Do not round intermediate calculations.) Maintenance cost in July
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started