Nova Company\'s total overhead cost at various levels of activity are presented
ID: 2604697 • Letter: N
Question
Nova Company's total overhead cost at various levels of activity are presented Machine-Overhead Apeil 51,000 218,900 41,000 191.900 61,000 245,900 71,000 $272,900 July he total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these cost e at the 41,000 machine-hour level of activity is: Otilitles (varlable) Supervisory salaries (tixed) Maistenance (mixed) Total ovethead oost 65,600 69,000 Nova Company's management wants to break down the maintenance cost into its variable and fixed cost elements 1. Estimate how much of the $272,900 of overhead cost in July was maintenance cost (Hint to do this, it may be helpful to first consisted of utilities and supervisory salarles. Think about the behavior of variable and fixed costs) 2. Using the high-low method, estimate a cost formula for maintenance in the form Ya bx 3. Express the company's total overhead cost in the form Y«a . 4.What total overhead cost would you expect to be incurred at an activity level of 46.000 machine-hours? Prev 162 Next > 5 6 8Explanation / Answer
1. Maintenance cost for July:
Total overhead cost = $272,900
Less: Supervisory salaries i.e., fixed cost = (69,000)
Less: Utility cost (65,600/41,000machine hours)= 1.6per machine hour*71,000 hours in July = (113,600)
Maintenance cost for July = $90,300
2. Cost formula for maintenance in the form Y = a+bX
Machine hours
Maintenance cost
High activity level
71,000
90,300
Low activity level
41,000
57,300 (note)
Change
30,000
33,000
Variable cost element
33,000/30,000 =
1.1
Fixed element
90,300-(71,000*1.1)=
12,200
Note: Maintenance cost for low level activity:
Total overhead cost = $191,900
Less: Supervisory salaries i.e., fixed cost = (69,000)
Less: Utility cost =(65,600)
Low level Maintenance cost = $57,300
3. Liner equation Y = a+bX
Variance cost per
Machine hour
Fixed cost
Utility cost
1.16
Supervisory cost
69,000
Maintenance cost
1.1
12,200
2.26
81,200
Y = 81,200+2.26X
4. Total overhead cost at activity level 46,000 machine hours:
Total overhead cost = 81,200+ 2.26*46,000
= 81,200+103,960 = $185,160
Machine hours
Maintenance cost
High activity level
71,000
90,300
Low activity level
41,000
57,300 (note)
Change
30,000
33,000
Variable cost element
33,000/30,000 =
1.1
Fixed element
90,300-(71,000*1.1)=
12,200
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