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    Nova Company high low method

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    Nova Company's total overhead costs at various levels of activity are presented below:

    Month Machine Hours Total Overhead Costs
    April 70,000 $198,000
    May 60,000 $174,000
    June 80,000 $222,000
    July 90,000 $246,000

    Assume that the total overhead costs above consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000 machine-hour level of activity is:

    Utilites (variable) $48,000
    Supervisory salaries (fixed) 21,000
    Maintenance (mixed) 105,000
    Total overhead costs $174,000


    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 costs in the linear equation form Y = a + bX
    4. What total overhead costs would you expect to be incurred at an operating level of 75,000 machine hours?

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    Solution Preview

    1. The total overhead cost has three components - utilities, supervisory salaries and maintenance. We need to subtract utilities and supervisory salaries to get the maintenance cost.
    Utilities is a variable cost which implies it would be fixed on per unit and vary in total. We are given that utility cost is 48,000 at 60,000 machine hours. Calculate the ...

    Solution Summary

    Nova Company high low methods are examined.