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Problem 5A-8 (Algo) High-Low Method; Predicting Cost (LO5-10] Nova Company's total overhead cost at various levels of activity are presented below: Month April May June
Problem 5A-8 (Algo) High-Low Method; Predicting Cost (LO5-10] Nova Company's total overhead cost at various levels of activity are presented below: Month April May June July Machine- Hours 48,000 38,000 58,000 68,000 Total Overhead Cost $ 209,360 $ 184,160 $ 234,560 $ 259,760 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 38,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 53,200 70,000 60,960 $184,160 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 $259,760 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $259,760 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 43,000 machine-hours? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Estimate how much of the $259,760 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $259,760 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.) (Do not round intermediate calculations.) Maintenance cost in July (Required Required 2 > Required 1 Required 2 Required 3 Required 4 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 = Required 1 Required 2 Required 3 Required 4 Express the company's 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= Required 1 Required 2 Required 3 Required 4 What total overhead cost would you expect to be incurred at an activity level of 43,000 machine-hours? (Do not round intermediate calculations.) Total overhead cost
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