Reference no: EM132851061
Problem - Nova Company's total overhead costs at various levels of activity follow:
|
Month
|
Machine-Hours
|
Total Overhead Costs
|
|
April
|
79,000
|
$216,000
|
|
May
|
117,500
|
288,000
|
|
June
|
98,000
|
240,000
|
|
July
|
108,000
|
246,360
|
Assume that the total overhead costs consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 79,000 machine-hour level of activity is as follows:
|
Utilities (v)
|
$48,360
|
|
Supervisory salaries (F)
|
22,800
|
|
Maintenance (M)
|
144,840
|
|
Total overhead costs
|
$216,000
|
V = variable; F = fixed: M = mixed.
Nova Company's management wants to break the maintenance cost down into its basic variable and fixed cost elements.
Required -
1. As shown, overhead costs in May amounted to $288,000. Determine how much of this consisted of maintenance cost.
2. By means of the high-low method, estimate a cost formula for maintenance.
3. Express the company's total overhead costs in the linear equation form Y = a + bX.
4. What total overhead costs would you expect to be incurred at an operating activity level of 78,000 machine-hours? At an operating activity level of 93,000 machine-hours?