Homework App SA Nova Companys total overhead cost at various

Homework App SA Nova Company\'s total overhead cost at various levels of activity are presented below Assume that the total overhead cost above consists of utities, supervisory salaries, and maintenance. The bresedown of these costs recest the 43,000 machine-hour level of activity h Nova Company\'s management wats to break down the maintenance cost into its variable and fwed cost elements t Estimate how much of the $261,660 of overhead cost in July was maintenance cost (Hint to do this, it may be heiplud to trst determine how much of the $261660 consisted of unities and supervisory salaries. Think about the behavior of variable and fsed 2. Using the high ow method, estimate a cost formula for maintenance in the form Ya+Dx 3. Express the company\'s total overhead cost in the 4. What total overhead cost would you expect to be incurred at an acsivity level of 48,000 machine-hours?

Solution

At 43000 MHs, total Utility cost = $68800 & the Utility variable cost per MH = $68800 / 43000 = $1.60 per MH

Fixed cost of Supervisory cost = $48000

Maintanance cost at 43000 MHs level = $63260

Now at 63000 MHs, total Utilities cost = 63000 * $1.60 = $100800

Maintanance cost at 63000 MHs = Total Overhead cost at 63000 MHs - Utilities cost - Supervisory cost

= 236460 - 100800 - 48000 = $87660

Break up of Maintenance cost through High - Low method =

High = 63000 = 87660

Low = 43000 = 63260

Diff. = 20000 = 24400

Variable part of Maintenance cost= 24400 / 20000 = $1.22 per MH

Fixed part of Maintenance cost = 63260 - 43000 * 1.22 = $10800

Req 1) July at 73000 MHs with total overhead cost $261660, the Maintenance cost = 261660 - (10800 + 73000*1.22) - 48000 = $113800

Req 2) Maintenance cost formulae = Y = 10800 + 1.22 X

Req 3) Company\'s total overhead cost formula = Y = 58800 + 2.82 X

Total Fixed cost of overhead = supervisory cost + maintenance fixed part = 48000 + 10800 = $58800

Total variable cost of overhead = Utility cost + Maintenance variable part = $1.60 + $1.22 = $2.82 per MH

Req 4) Total overhead cost of 48000 MHs level = 58800 + 48000*2.82 = $194160