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
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 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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Nova Company high low methods are examined.
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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 ...
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