PROBLEM 2-20 High-Low Method; Predicting Cost (LO 2-4, LO 2-5] Nova Company's total overhead cost at various levels of activity are presented below: Total Overhead Cost Month Machine-Hours April... May........ June ........... July .......... 70,000 60,000 80,000 90,000 $198.000 $174,000 $222,000 $246,000 Assume that the total overhead cost above consists of utilities, supervisory salaries, and main- tenance. The breakdown of these costs at the 60,000 machine-hour level of activity is: Utilities (variable) .......... Supervisory salaries (fixed).... Maintenance (mixed) ........ Total overhead cost ........ $ 48,000 21,000 105,000 $174.000 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 $246,000 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $246,000 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. - 3. Express the company's total overhead cost in the linear equation form Y = a +bX. 4. What total overhead cost would you expect to be incurred at an activity level of 75,000 machine-hours? P2-20 ALL YELLOW HIGHLIGHTED CELLS REQUIRE DATA INPUT NOT KEY OVER FORMULAS Requirement 1. LEVEL OF ACTIVITY 60,000 MHS 90,000 MHS 174,000 - $ 246,00D- Total Factory Overhead Cost: Deduct: Utilities Cost @$ 80 per MH Supervisory Salaries: Maintenance Cost: 21.000 - $ 2 ROOD * Utilities Cost = $48,000/60,000 MHS-$0.80 per MH Requirement 2 Machine Hours Maintenance Cost High Activity Level: Low Activity Level: Change: 0S Variable Rate: Change in Cost/Change in Activity $ 2.40 - per MH Total Fixed Cost: Total Maintenance Cost at the High Activity Level: Less Variable Cost Element: High Activity MHs x Variable Rate Fixed Cost Element: $ 30,000 $ 12.000 Please write the cost formula for maintenance below: Requirement 3. Variable Cost per MH Fixed Cost $ 21,000 - Utilities Cost: Supervisory Salaries Cost: Maintenance Cost: Overhead Cost: Please write the cost formula for overhead below: Requirement 4. Fixed Costs: Variable costs for 75,000 Mhs: Total Overhead Costs