Nova Company\'s total overhead cost at various levels of activity are presented

Question

Nova Company's total overhead cost at various levels of activity are presented below: Total Machine-Overhead Month April May une July Hours 55,000 45,000 203,050 65,000 257,650 75,000 284,950 Cost 230,350 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 45,000 machine-hour level of activity is: Utilities (variable) Supervisory salaries (fixed) Maintenance (mixed) Total overhead cost $67,500 61,000 74,550 $203,050 Nova Company's management wants to break down the maintenance cost into its variable and fixed cost elements

Explanation / Answer

Nova Company Total Overhead cost of 75000 Machine Hours= $                284,950.00 Less: Utilities Expenses=($67500/45000)*75000 $                112,500.00 Supervisory Salaries(Fixed) $                  61,000.00 Mainternance Cost=($284950-$112500-$61000) $                111,450.00 Calculation of variable portion of Maintenance cost Maintenance cost Machine Hours High Point $                111,450.00 $                 75,000.00 Low Point $                  74,550.00 $                 45,000.00 Change $                  36,900.00 $                 30,000.00 Variable portion of Maintenance cost=($36900/30000) $                             1.23 Per Machine Hours Maintenance Cost for July Total Overhead Cost for July $                284,950.00 Less: Utilities $                112,500.00 Less: Supervisory Salary $                  61,000.00 Less: Variable Maintenance cost $                  92,250.00 Less: Fixed Maintenance Cost $                  19,200.00 Maintenance cost in July= $                111,450.00

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