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Nova Company's total overhead cost at various levels of activity are presented below: Month April May June July Machine- Hours 55,000 45,000 65,000 75,000 Total
Nova Company's total overhead cost at various levels of activity are presented below: Month April May June July Machine- Hours 55,000 45,000 65,000 75,000 Total Overhead Cost $ 197,750 $ 171,450 $ 224,050 $ 250,350 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) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 67,500 40,000 63,950 $171,450 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 $250,350 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $250,350 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 50,000 machine-hours? Maintenance cost in July $ 97,850 Y= + Variable Cost per Machine- Hour Fixed Cost Utilities cost $ 1.50 Supervisory salaries cost $ 40,000 Maintenance cost Total overhead cost $ 1.50 $ 40,000 Y = + X Total overhead cost
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