Question

Nova Company's total overhead cost at various levels of activity are presented below: Month April May June July Machine- Hours 52,000 42,000 62,000 72,000 Total Overhead Cost $223,100 $196,100 $250, 100 $277,100 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 42,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 63,000 65,000 68,100 $ 196,100 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 $277,100 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $277,100 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) Maintenance cost in July

Answer 1

1
Total overhead cost	277100
Less: Utilities	108000	=63000/42000*72000
Less: Supervisory salaries	65000
Maintenance cost in July	104100
2
	Machine hours	Maintenance cost
High level	72000	104100
Low level	42000	68100
Change	30000	36000
Variable cost element	1.20	=36000/30000
Fixed cost element	17700	=104100-(72000*1.2)
Y = 17700 + 1.20 X
3
	Variable cost per machine hour	Fixed cost
Utilities cost	1.50
Supervisory salaries cost		65000
Maintenance cost	1.20	17700
Total overhead cost	2.70	82700
Y = 82700 + 2.70 X
4
Total overhead costs	209600	=82700+(47000*2.70)