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

Question

Nova Company’s total overhead cost at various levels of activity are presented below: Month Machine-Hours Total Overhead Cost April 49,000 $220,760 May 39,000 $192,360 June 59,000 $249,160 July 69,000 $277,560 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 39,000 machine-hour level of activity is: Utilities (variable) $ 62,400 Supervisory salaries (fixed) 63,000 Maintenance (mixed) 66,960 Total overhead cost $ 192,360 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 $277,560 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $277,560 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)

Explanation / Answer

Maintenance cost in June $
Low:
Maintenance cost = Total factory overhead cost - Utilities cost @ $1.6* per MH - Supervisory salaries (fixed)

= $192,360 - $62,400 - $63,000
= $66,960

*($62,400 / 39,000 = $1.6)

High:
Maintenance cost = Total factory overhead cost - Utilities cost @ $1.6* per MH - Supervisory salaries (fixed)

= $277,560 - 110,400 (69,000 x 1.6) - 63,000
= $104,160

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