Problem 5A-8 High-Low Method; Predicting Cost [LO5-10]
Nova Companyâs total overhead cost at various levels of activityare presented below:
Month Machine-
Hours Total
Overhead
Cost April 51,000 $ 181,360 May 41,000 $ 157,760 June 61,000 $ 204,960 July 71,000 $ 228,560
Assume that the total overhead cost above consists of utilities,supervisory salaries, and maintenance. The breakdown of these costsat the 41,000 machine-hour level of activity is:
Utilities (variable) $ 53,300 Supervisory salaries(fixed) 48,000 Maintenance (mixed) 56,460 Total overhead cost $ 157,760
Nova Companyâs management wants to break down the maintenancecost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $228,560 of overhead cost in Julywas maintenance cost. (Hint: to do this, it may be helpfulto first determine how much of the $228,560 consisted of utilitiesand supervisory salaries. Think about the behavior of variable andfixed costs.)
2. Using the high-low method, estimate a cost formula formaintenance in the form Y = a + bX.
3. Express the companyâs total overhead cost in theform Y = a + bX.
4. What total overhead cost would you expect to beincurred at an activity level of 46,000 machine-hours?
Problem 5A-8 High-Low Method; Predicting Cost [LO5-10]
Nova Companyâs total overhead cost at various levels of activityare presented below:
| Month | Machine- Hours | Total Overhead Cost | |||
| April | 51,000 | $ | 181,360 | ||
| May | 41,000 | $ | 157,760 | ||
| June | 61,000 | $ | 204,960 | ||
| July | 71,000 | $ | 228,560 | ||
Assume that the total overhead cost above consists of utilities,supervisory salaries, and maintenance. The breakdown of these costsat the 41,000 machine-hour level of activity is:
| Utilities (variable) | $ | 53,300 |
| Supervisory salaries(fixed) | 48,000 | |
| Maintenance (mixed) | 56,460 | |
| Total overhead cost | $ | 157,760 |
Nova Companyâs management wants to break down the maintenancecost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $228,560 of overhead cost in Julywas maintenance cost. (Hint: to do this, it may be helpfulto first determine how much of the $228,560 consisted of utilitiesand supervisory salaries. Think about the behavior of variable andfixed costs.)
2. Using the high-low method, estimate a cost formula formaintenance in the form Y = a + bX.
3. Express the companyâs total overhead cost in theform Y = a + bX.
4. What total overhead cost would you expect to beincurred at an activity level of 46,000 machine-hours?
Related questions
| Nova Companyâs total overheadcost at various levels of activity are presented below: |
| Month | Machine-Hours | Total OverheadCost |
| April | 48,000 | $200,760 |
| May | 38,000 | $176,560 |
| June | 58,000 | $224,960 |
| July | 68,000 | $249,160 |
Assume that the total overhead cost above consists of utilities,supervisory salaries, and maintenance. The breakdown of these costsat the 38,000 machine-hour level of activity is: |
| Utilities(variable) | $ | 45,600 |
| Supervisory salaries(fixed) | 68,000 | |
| Maintenance(mixed) | 62,960 | |
| Total overheadcost | $ | 176,560 |
Nova Companyâs management wants to break down the maintenancecost into its variable and fixed cost elements. |
| Required: |
| 1. | Estimate how much of the $249,160 of overhead cost in July wasmaintenance cost. (Hint: To do this, it may be helpful tofirst determine how much of the $249,160 consisted of utilities andsupervisory salaries. Think about the behavior of variable andfixed costs!) (Do not round intermediatecalculations.) |
| 2. | Using the high-low method, estimate a cost formula formaintenance. (Do not round your intermediate calculations.Round the "Variable cost per unit" to 2 decimalplaces.) |
| 3. | Express the companyâs total overhead cost in the linearequation form Y = a + bX. (Do not round yourintermediate calculations. Round the "Variable cost per unit" to 2decimal places.) |
| 4. | What total overhead cost would you expect to beincurred at an activity level of 43,000 machine-hours? (Donot round intermediate calculations.) |
