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

by

Assume that the total overhead cost above consist of utilities,
supervisory salaries and maintenance. The breakdown of these costs
at the 60,000 machine hour level of activity is: Utilities
(variable)……………………………………48,000
supervisory salaries
(fixed)…………………………..21,000
maintenance
(mixed)………………………………..105,000
174,000
Nova managements want to break down the maintenance cost into
variable and fixed cost elements.
required:
1. Estimate how much of the $246,000 of overhead cost in July was
maintenance cost.
2. using the high-low method, estimate a cost formula for
maintenance.
3. express the company’s total overhead cost in the linear equation
form Y=a+bX
4. what total overhead cost would you expect to be incurred at an
operating activity level of 75,000 machine hour?

1
Total overhead cost 246000
Less: Utilities 72000 =48000/60000*90000
Less: Supervisory salaries 21000
Maintenance cost in July 153000
2
Machine hours Maintenance cost
High level 90000 153000
Low level 60000 105000
Difference 30000 48000
Variable cost 1.60 =48000/30000
Fixed cost 9000 =153000-(90000*1.60)
Y = 9000 + 1.60 X
3
Variable
cost per
machine hour		 Fixed cost
Utilities cost 0.80
Supervisory salaries cost 21000
Maintenance cost 1.60 9000
Total overhead cost 2.40 30000
Y = 30000 + 2.40 X
4
Total overhead costs 210000 =30000+(75000*2.40)
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