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Problem 6A-8 High-Low Method; Predicting Cost [LO6-10] Nova Company's total overhead cost at various levels of activity are presented below: Month April May June July
Problem 6A-8 High-Low Method; Predicting Cost [LO6-10] Nova Company's total overhead cost at various levels of activity are presented below: Month April May June July Machine- Hours 53,000 43,000 63,000 73,000 Total Overhead Cost $ 222,760 $ 196,560 $ 248,960 $ 275,160 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 43,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 64,500 66,000 66,060 $ 196,560 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 $275,160 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $275,160 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 48,000 machine-hours
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