nova company s total overhead cost at various levels of activi 382425

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

Month Machine Hours Total Overhead Cost

April 52,500 $ 205,200

May 42,000 $ 180,000

June 63,000 $ 230,400

July 73,500 $ 255,600

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 42,000 machine hour level of activity is:

Utilities (variable) $ 54,600

Supervisory salaries (fixed) 64,000

Maintenance (mixed) 61,400

Total overhead cost $ 180,000

Nova Company’s management wants to break down the maintenance cost into its variable and fixed cost elements.

Requirement 1: Estimate how much of the $255,600 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $255,600 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Omit the “$” sign in your response.)

Maintenance cost $

Requirement 2: Using the high low method, estimate a cost formula for maintenance. (Round the variable portion of the formula to 2 decimal places. Omit the “$” sign in your response.)

Y = $ + $ X

Requirement 3: Express the company’s total overhead cost in the linear equation form Y = a +bX. (Round the variable portion of the formula to 2 decimal places. Omit the “$” sign in your response.)

Y = $ + $ X

Requirement 4: What total overhead cost would you expect to be incurred at an operating activity level of 46,200 machine hours? (Round your answer to the nearest dollar amount. Omit the “$” sign in your response.)

Total overhead costs $