Nova Company's total overhead cost at various levels of activity are presented below: Month April Machine- Total Hours Overhead Cost 54,000 $ 193,040 44,000 $ 168,940 64,000 74,000 $ 217,140 $ 241,240 May June July Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 44,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 57,200 48,000 63,740 $ 168,940 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 $241,240 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $241,240 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.) 2. Using the high-low method, estimate a cost formula for maintenance in the form Y = a + bx. 3. Express the company's total overhead cost in the form Y = a + bx. 4. What total overhead cost would you expect to be incurred at an activity level of 49,000 machine-hours?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Nova Company's total overhead cost at various levels of activity are presented below:
Month
April
Machine-
Total
Hours Overhead Cost
54,000 $ 193,040
44,000
$ 168,940
64,000
74,000
$ 217,140
$ 241,240
May
June
July
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs
at the 44,000 machine-hour level of activity is:
Utilities (variable)
Supervisory salaries (fixed)
Maintenance (mixed)
Total overhead cost
$ 57,200
48,000
63,740
$ 168,940
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 $241,240 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first
determine how much of the $241,240 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed
costs.)
2. Using the high-low method, estimate a cost formula for maintenance in the form Y = a + bx.
3. Express the company's total overhead cost in the form Y = a + bx.
4. What total overhead cost would you expect to be incurred at an activity level of 49,000 machine-hours?
Transcribed Image Text:Nova Company's total overhead cost at various levels of activity are presented below: Month April Machine- Total Hours Overhead Cost 54,000 $ 193,040 44,000 $ 168,940 64,000 74,000 $ 217,140 $ 241,240 May June July Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 44,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 57,200 48,000 63,740 $ 168,940 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 $241,240 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $241,240 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.) 2. Using the high-low method, estimate a cost formula for maintenance in the form Y = a + bx. 3. Express the company's total overhead cost in the form Y = a + bx. 4. What total overhead cost would you expect to be incurred at an activity level of 49,000 machine-hours?
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