Question 5.

Nova Companys total overhead cost at various levels of activity are presented below:

Month	Machine-Hours	Total Overhead Cost
April	53,000	$201,360
May	43,000	$176,160
June	63,000	$226,560
July	73,000	$251,760

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)	$	55,900
Supervisory salaries (fixed)		54,000
Maintenance (mixed)		66,260
Total overhead cost	$	176,160

Nova Companys management wants to break down the maintenance cost into its variable and fixed cost elements.

Requirements:

1.

Estimate how much of the $251,760 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $251,760 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)

2.

Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

3.

Express the companys total overhead cost in the linear equation form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.)

4.

What total overhead cost would you expect to be incurred at an activity level of 48,000 machine-hours?