[nicole307]

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

Month Machine-hours Total overhead cost
April 70,000 $ 198,000
May 60,000 $ 174,000
June 80,000 $ 222,000
July 90,000 $ 246,000

Assume the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000 machine-hours level of activity is:

Utilities (variable)... $ 48,000
Supervisory salaries (fixed)... 21,000
Maintenance (mixed)... 105,000
Total overhead cost... $174,000

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 $ 246,000 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $ 246,000 consisted of utilities and supervisory salaries. Think about the variable and fixed cost!)


Utilities (variable)...
Supervisory salaries (fixed)...
Maintenance (mixed)...
Total overhead cost... 246,000


2. Using the high-low method, estimate the cost formula for maintenance.
3. Express the company’s total overhead cost in the linear equation form Y= a + bX.
4. What total overhead cost would you expect to be incurred at an operating activity level of 75,000 machine-hours?