Problem 5A-8 (Algo) High-Low Method; Predicting Cost [LO5-10] Nova Company's total overhead cost at various levels of activity are presented below: Total Overhead Cost $ 170,500 $ 148,000 $ 193,000 $215,500 Month April May June July Machine-Hours 46,000 36,000 56,000 66,000 Assume the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 36,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 39,600 54,000 54,400 $ 148,000 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 $215,500 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $215,500 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 at an activity level of 41,000 machine-hours?

Problem 5A-8 (Algo) High-Low Method; Predicting Cost [LO5-10] Nova Company's total overhead cost at various levels of activity are presented below: Total Overhead Cost $ 170,500 $ 148,000 $ 193,000 $215,500 Month April May June July Machine-Hours 46,000 36,000 56,000 66,000 Assume the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 36,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $ 39,600 54,000 54,400 $ 148,000 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 $215,500 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $215,500 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 at an activity level of 41,000 machine-hours?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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