Nova Company's total overhead cost at various levels of activity are presented below Total Overhead Machine- Month Hours Cost April May June 52,000 42,000 62,000 72,000 $203,860 $181,060 $226,660 $249,460 July 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) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost S 50,400 67,000 63.660 181,060 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 $249,460 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $249,460 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) Maintenance cost in July 2. Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per machine-hours" to 2 decimal places.) Maintenance Cost Machine- Hours High activity level Low activity level Change Variable cost element per MH Fixed cost element
Nova Company's total overhead cost at various levels of activity are presented below Total Overhead Machine- Month Hours Cost April May June 52,000 42,000 62,000 72,000 $203,860 $181,060 $226,660 $249,460 July 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) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost S 50,400 67,000 63.660 181,060 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 $249,460 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $249,460 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) Maintenance cost in July 2. Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the "Variable cost per machine-hours" to 2 decimal places.) Maintenance Cost Machine- Hours High activity level Low activity level Change Variable cost element per MH Fixed cost element
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Nova Company's total overhead cost at various levels of activity are presented below
Total
Overhead
Machine-
Month
Hours
Cost
April
May
June
52,000
42,000
62,000
72,000
$203,860
$181,060
$226,660
$249,460
July
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)
Supervisory salaries (fixed)
Maintenance (mixed)
Total overhead cost
S
50,400
67,000
63.660
181,060
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 $249,460 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first
determine how much of the $249,460 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!)
(Do not round intermediate calculations.)
Maintenance cost in July
2. Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the
"Variable cost per machine-hours" to 2 decimal places.)
Maintenance
Cost
Machine-
Hours
High activity level
Low activity level
Change
Variable cost element
per MH
Fixed cost element
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