Nova Company\'s total overhead cost at various levels of activity are presented

Question

Nova Company's total overhead cost at various levels of activity are presented below Month Machine-Hours Total Overhead Cost April May June July 50,000 40,000 60,000 70,000 $188,400 S164,300 S212,500 S236,60D Assume that the total overhead cost above consists of ubities, superMsory salaries, and maintenance. The breakdown of these costs at the 40,000 machine-hour level of activity is: Uilities (variable) Supervisory salaries (fixed) Maintenance (mixed) S 52,000 48.000 64.300 164,300 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 $236,600 of ovemead cost in July was maintenance cost (Hint To do this, it may be helpful to first determine how much of the 5236,600 consisted of utilities and superMsory salaries. Think about the behavior of vanable and fixed costsI) (Do not round e cost in J 2. Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the Variable cost per unit" to 2 decimal places.) High activity level Low actvty level Change ariable cost element per MH Fixed cost element 3. Express the company's total overhead cost in the linear equation torm = e·b·(Do not round your intermediate calculations. Round the "Variable cost per unit" to 2 decimal places.) Variable Cost per Machine-Hour Fixed Cost Utilities cost isory salaries cost Maintenance cost Total overhead cost 4. What totaloverhead cost would you expect to be incred a an activity level of 45,000 machine- hours? (Do not round intermediate calculations.) Total overhead cost

Explanation / Answer

1)

Utilities per hour = $52000 / 40000 hours =$1.30 per hour

Maintenace Cost in July = $97600

Workings:

2)

3)

Cost Equation:

Y = $67900 + $2.41X

4)

Y = 67900 + 2.41 x 45000 = $176350

Hours 40000 70000 Total cost $ 164,300 $ 236,600 Less: Utilities @ $1.30 per hour $ 52,000 $ 91,000 Supervisory salaries (fixed) $ 48,000 $ 48,000 $ 100,000 $ 139,000 Maintenance cost $    64,300 $    97,600

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