Utilities cost per machine hour = Total utilities cost at 41000 machine hour level of activity / 41000 = 53300 / 41000 | 1.30 |
Required 1 : | |
July | |
Total overhead cost | 258840 |
(-) Utilities cost ( 71000 * 1.30 ) | 92300 |
(-) Supervisory salaries | 63000 |
Maintenance cost | 103540 |
Required 2 : | ||
Machine hours | Maintenance cost | |
High level of activity (July) | 71000 | 103540 |
(-) Low level of activity (May) | 41000 | 66340 |
Difference | 30000 | 37200 |
Variable maintenance cost per machine hour = Difference in maintenance cost / Difference in Machine hours = 37200 / 30000 | 1.24 |
Now let us calculate the fixed maintenance cost using the information of high level of activity | |
Total maintenance cost = ( Machine hours * Variable maintenance cost per machine hours ) + Fixed maintenance cost | |
103540 = ( 71000 * 1.24 ) + Fixed maintenance cost | |
103540 = 88040 + Fixed maintenance cost | |
Fixed maintenance cost = 103540 - 88040 | 15500 |
Cost formula for maintenance : |
Y = 15500 + 1.24 X |
Required 3 : |
Cost formula for total overhead : |
Y = ( 15500 + 63000 ) + ( 1.24 + 1.30 ) X |
Y = 78500 + 2.54X |
Required 4 : | |
Let us calculate the Total overhead cost at an an activity level of 46000 machine hours using the cost formula derived in requirement 3 : | |
Y = 78500 + 2.54 * ( 46000 ) | 195340 |
Nova Company's total overhead cost at various levels of activity are presented below: Month April May...
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