Month Machine- Hours Total Overhead Cost April 48,000 $ 198,000 May 38,000 $ 172,000 June 58,000 $ 224,000 July 68,000 $ 250,000 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 38,000 machine-hour level of activity is: Utilities (variable) $ 53,200 Supervisory salaries (fixed) 56,000 Maintenance (mixed) 62,800 Total overhead cost $ 172,000 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 $250,000 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $250,000 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs.) 2. Using the high-low method, estimate a cost formula for maintenance in the form Y = a + bX. 3. Express the company’s total overhead cost in the form Y = a + bX. 4. What total overhead cost would you expect to be incurred at an activity level of 43,000 machine-hours?
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Month Machine- Hours Total Overhead Cost April 48,000 $ 198,000 May 38,000 $ 172,000 June 58,000 $ 2...
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