Chapter 6.A, Problem 8P

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

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

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 oei1iead cost in July maintenance cost was. (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 behavior of variable and fixed costs.)
2. Using the high-tow 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 75,000 machine-hours?