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xAssignme Connect x St. x Connect Grades fo Secure https:/ ia Apps \' Delphi Community s.. Tyler\'s Wants E osu 1 AAU CampeTwitter class pages If Facebook reddit tefront p4- D Dict Homework App 5A 2 Problem 5A-8 High-Low Method; Predicting Cost [LO5-10] 50 Nova Company\'s total overhead cost at various levels of activity are presented below Total Machine- Overhead 53,000 207,260 63,000 234,460 Apri1 July Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The br at the 43,000 machine-hour level of activity is: 68,800 ueilities (variable) Bupervieory salaries eixed Maintenance (mixed) Total overhead coat 180,060 Nova Company\'s management wants to break down the maintenance cost into its variable and fixed cost elem Required: 1. Estimate how much of the $261,660 of overhead cost in July was maintenance cost. (Hint to do this, it may be determine how much of the $261,660 consisted of utilities and supervisory salaries. Think about the behavior a

Solution

1.   Maintenance cost at the 73,000 machine-hour level of activity can be isolated as follows:

Level of Activity

43,000 MHs

73,000 MHs

Total factory overhead cost ........

$180,060

$261,660

Deduct:

Utilities cost @ $1.60 per MH*.

68,800

116,800

Supervisory salaries ................

  48,000

  48,000

Maintenance cost ......................

$63,260

$96,860

*$68,800 ÷ 43,000 MHs = $1.60 per MH

2.   High-low analysis of maintenance cost:

Machine- Hours

Maintenance Cost

High activity level ....................    73,000      $ 96,860

Low activity level .....................    43,000         63,260 Change ...................................              30,000      $ 33,600

Variable rate:

Change in cost

= $33,600    

= $1.12 per MH

Change in activity      30,000 MHs

Total fixed cost:

Total maintenance cost at the high activity level ..

$96,860

Less variable cost element

(73,000 MHs x $1.12 per MH) .........................

81,760

Fixed cost element ............................................

$ 15,100

Therefore, the cost formula for maintenance is $15,100 per month plus

$1.12 per machine-hour or

Y = $15,100 + $1.12X.

3.                                                                               Variable Cost per

Machine-Hour          Fixed Cost

Utilities cost ....................

$1.60

Supervisory salaries cost..

$48,000

Maintenance cost ............

1.12

  15,100

Total overhead cost .........

$2.72

$63,100

Thus, the cost formula would be: Y = $63,100 + $2.72X.

4.   Total overhead cost at an activity level of 48,000 machine-hours:

Fixed costs.................................................

$ 63,100

Variable costs: 48,000 MHs x $2.72 per MH

130,560

Total overhead costs...................................

$193,660

	43,000 MHs	73,000 MHs
Total factory overhead cost ........	$180,060	$261,660
Deduct:
Utilities cost @ $1.60 per MH*.	68,800	116,800
Supervisory salaries ................	48,000	48,000
Maintenance cost ......................	$63,260	$96,860