Question

Nova Company's total overhead cost at various levels of activity are presented below: Total Machine- Overhead Hours 45,000 35,000 55,000 65,000 Month Cost S 185,650 $ 160,350 $ 210,950 $ 236,250 April May June July Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 35,000 machine-hour level of activity is: $ 45,500 54,000 60,850 $160,350 Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost 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 $236,250 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $236,250 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 40,000 machine-hours? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Estimate how much of the $236,250 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $236,250 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.) (Do not round intermediate calculations.) 97,750 Maintenance cost in July

Answer 1

1) Calculate maintenance cost of July

	July
Utilities	65000*1.30 = 84500
Supervisory salaries	54000
Maintenance	97750
Total	236250

2) Cost formula for maintenance

Y = a+bx

Y = 17800+1.23X

3) Cost formula for total overhead cost

Y = a+bx

Y = 71800+2.53X

4) Total overhead cost = 71800+2.53*40000 = $173000