Nova Company’s total overhead cost at various levels of activity are presented b
ID: 2328254 • Letter: N
Question
Nova Company’s total overhead cost at various levels of activity are presented below:
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 40,000 machine-hour level of activity is:
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 $243,900 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $243,900 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 45,000 machine-hours?
Month Machine-Hours Total
Overhead
Cost April 50,000 $ 190,900 May 40,000 $ 164,400 June 60,000 $ 217,400 July 70,000 $ 243,900
Explanation / Answer
maintainance cost at july machine hour 70000 particulars 70000 Mhr Total overhead cost $ 2,43,900.00 less: utilites cost @1.5per hour (70000*1.50) $ 1,05,000.00 supervisor salaries $ 41,000.00 maintainance cost $ 97,900.00 Utilities cost per hour = 60000/40000hrs = 1.50 per hour 40000 mhR Total overhead cost $ 1,64,400.00 less: utilites cost @1.1 per hour $ 60,000.00 supervisor salaries $ 41,000.00 maintainance cost $ 63,400.00 2) High low method for maintenance particulars machine hrs maintenance cost high activity level $ 70,000.00 $ 97,900.00 low level activity $ 40,000.00 $ 63,400.00 change $ 30,000.00 $ 34,500.00 Variable rate = change in cost /change in activity 34500/30000 = 1.15 per mh total fixed cost total maintainence cost at high level activity 97900 less: variable cost (70000*1.15 per mh) 80500 fixed cost 17400 Y = 17400+1.15X IS THE FORMULA OF COST 3) express co overhead in the form of a+bx utilities cost 1.5 per MHR Fixed cost supervisor salaries cost $ 41,000.00 maintenance cost 1.15 per MHR $ 17,400.00 TOTAL OVERHEAD COST 2.65 per MHR $ 58,400.00 Y = 58400+2.65X IS THE FORMULA OF COST 4) total overhead cost to be incurred at an activity level of 45000 machine hours Y = 58400+2.65*45000 MHR Y =58400+119250 COST = 177650
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.