Nova Company's total overhead cost at various levels of activity are presented below: Month April May June July Machine- Hours 54,000 44,000 64,000 74,000 Total Overhead Cost $ 210,240 $ 183,140 $ 237,340 $ 264,440 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 $70,400 47,000 65,740 $183,140 Nova Company's management wants to break down the maintenance cost into its variable and fixed cost elements.

Nova Company's total overhead cost at various levels of activity are presented below: Month April May June July Machine- Hours 54,000 44,000 64,000 74,000 Total Overhead Cost $ 210,240 $ 183,140 $ 237,340 $ 264,440 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 $70,400 47,000 65,740 $183,140 Nova Company's management wants to break down the maintenance cost into its variable and fixed cost elements.

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Description: Nova Company's total overhead cost at various levels of activity are presented below:TotalOverheadCostMonthAprilMayJuneJulyMachine-Hours54,00044,00064,00074,000$ 210,240$ 183,140$ 237,340$ 264,440Assume that the total overhead cost above consists of

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Concept explainers

Variance Analysis

In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.

Standard Costing

The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.

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Question

Nova Company's total overhead cost at various levels of activity are presented below:
Total
Overhead
Cost
Month
April
May
June
July
Machine-
Hours
54,000
44,000
64,000
74,000
$ 210,240
$ 183,140
$ 237,340
$ 264,440
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
$ 70,400
47,000
65,740
$183,140
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 $264,440 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first
determine how much of the $264,440 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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