Nova Company’s total overhead cost at various levels of activity are presented b

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 39,000 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 $256,820 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $256,820 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)

2. Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per machine-hours" to 2 decimal places.)

Y= a + bX

3. Express the company’s total overhead cost in the linear equation form Y = a + bX. (Do not round your intermediate calculations. Round the "Variable cost per machine-hours" to 2 decimal places.)

y= a +bX

4. What total overhead cost would you expect to be incurred at an activity level of 44,000 machine-hours? (Do not round intermediate calculations.)

Month Machine-
Hours Total
Overhead Cost April 49,000 $ 205,220 May 39,000 $ 179,420 June 59,000 $ 231,020 July 69,000 $ 256,820

Explanation / Answer

1) Utilities (58500/39000)*69000= 103500 Supervisory Salaries 64,000 Maintenance (balancing figure) 89,320 Total overhead cost 256,820 2) Estimating formula for maintenance cot MH's cost high 69,000 89,320 low -39,000 -56,920 Difference 30,000 32,400 Variable cost per unit = 32400/30000 1.08 Fixed cost = 89320 - 69000*1.08 14800 Cost formula Y= 14,800 + 1.08 X 3) Companys total overhead cost Variable Fixed Utilities 1.5 Supervisory salaries 64,000 Maintenance cost 1.08 14,800 total 2.58 78800 cost formula Y= 78,800 + 2.58 X 4) total overhead cost Y= 78,800 + 2.58 X so fixed cost 78,800 Variable cost (44000*2.58) 113520 total overhead cost 192,320 answer

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.