Question

not quite sure how to do this one

EESU k my work mode: This shows what is correct or incorrect for the work you have completed so far. It does not indicate completion Return to questio Month April May June July Machine- Hours 52,000 42,000 62,000 72,000 Total Overhead Cost $191,060 $ 165,260 $216,860 $ 242,660 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 41,000 61,260 $165,260 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 $242,660 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $242,660 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 47,000 machine-hours? < Prev 9 of 10 !! IT Next >

Answer 1

Answer 1.

May:

Utilities per machine hour = Utilities / Machine hours
Utilities per machine hour = $63,000 / 42,000
Utilities per machine hour = $1.50

July:

Utilities = Utilities per machine hour * Machine hour
Utilities = $1.50 * 72,000
Utilities = $108,000

Total overhead cost = Utilities + Supervisory + Maintenance
$242,660 = $108,000 + $41,000 + Maintenance
Maintenance = $93,660

Answer 2.

Maintenance per machine hours = (Maintenance during July - Maintenance during May) / (Machine hours during July - Machine hours during May)
Maintenance per machine hours = ($93,660 - $61,260) / (72,000 - 42,000)
Maintenance per machine hours = $1.08

Fixed maintenance = Maintenance during July - Maintenance per machine hours * Machine hours during July
Fixed maintenance = $93,660 - $1.08 * 72,000
Fixed maintenance = $15,900

Maintenance = $15,900 + $1.08 * Number of machine hours

Answer 3.

Variable overhead cost per machine hour = Utilities per machine hours + Maintenance per machine hours
Variable overhead cost per machine hour = $1.50 + $1.08
Variable overhead cost per machine hour = $2.58

Fixed overhead = Supervisory salaries + Maintenance
Fixed overhead = $41,000 + $15,900
Fixed overhead = $56,900

Total overhead cost = Fixed overhead + Variable overhead cost per machine hour * Number of machine hours
Total overhead cost = $56,900 + $2.58 * Number of machine hours

Answer 4.

Total overhead cost = $56,900 + $2.58 * Number of machine hours
Total overhead cost = $56,900 + $2.58 * 47,000
Total overhead cost = $178,160