omework Problem 5A-8 High-Low Method; Predicting Cost [LO5-10] Nova Company\'s t

Question

omework Problem 5A-8 High-Low Method; Predicting Cost [LO5-10] Nova Company's total overheed cost at various levels of activity are presented below kachine- Overhead Cost pril May 52,80 214,56 42,000 %1 ,76e 62,68e 24e,360 72,008 266,160 uly Assume that the total overhead cost above consists of utlities, supervisory salanes, and maintenance. The breakdown of these costs at the 42.000 machine-hour level of activity Is utilities (varlable) Supervisery salaries (fixed) Haintenance (mixed) Total overhead cost 63,099 66,00 5188,760 Nova Company's management wants to break down the maintenance cost intouts vartabie and fxed cost elements Required: 1 Estmate how much of the $266160 of overhead cost in July was maintenance cost. (Hlint to do this, It may be helpful to first determine how much of the $266,160 consisted of utities and supervisory salarles. Think about the behavior of variable and fixed costs.) 2. Using the high-low method, esamate a cost formula for maintenance in the form Y-a bx 3. Express the company's total overhead cost in the form Y--bX 4. What total overheed cost wouid you expect to be incurred at an activity level of 47000 machine-hours? Complete this question by entering yout answers in the tabs below. Estimate how much of the $266,160 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpfull to first determine how much of the $266, 160 consisted of ublities and supervisory salaries. Think about the behavior of variable and Required 2 Type here to search

Explanation / Answer

Utilities cost per hour hour 1.5 Utilities cost at 72000 hours 108000 1 Calculation of maintenance cost Total overhead cost 266160 Less: Utilities cost 108000 Less: Supervisory cost 66000 Maintenance cost 92160 2 High Low Difference Maintenance cost 92160 59760 32400 Hours 72000 42000 30000 Variable cost per unit 1.08 Fixed Portion 14400 92160-(1.08*72000) Y = 14400 + 1.08X 3 Variable cost per machine hour Fixed cost Utilities cost 1.08 14400 Supervisory salaries cost 66000 Maintenece cost 1.5 2.58 80400 Y = 80400 + 2.58X 4 Total overhead cost 201660 (2.58*47000)+80400

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