Question
In: Accounting
Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably...
Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably from year to year according to increases and decreases in the number of direct labor-hours worked in the factory. Total factory overhead costs at high and low levels of activity for recent years are given below: Level of Activity Low High Direct labor-hours 45,600 60,800 Total factory overhead costs $ 234,300 $ 257,100 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 45,600-hour level of activity as follows: Indirect materials (variable) $ 59,280 Rent (fixed) 139,000 Maintenance (mixed) 36,020 Total factory overhead costs $ 234,300 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. Required:
1. Estimate how much of the $257,100 factory overhead cost at the high level of activity consists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $257,100 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)
2. Using the high-low method, estimate a cost formula for maintenance. (Do not round intermediate calculations. Round "Variable cost element" to 2 decimal places.)
3. What total factory overhead costs would you expect the company to incur at an operating level of 50,160 direct labor-hours? (Do not round intermediate calculations.)
Solutions
Expert Solution
| Indirect material per DLH: | ||||||
| Total Indirest material | 59280 | |||||
| Divide: Total DLH | 45600 | |||||
| Indirect material per DLH: | 1.3 | |||||
| Req 1. | ||||||
| Miantennance cost: | ||||||
| Total OH at 60800 DLH activity | 257100 | |||||
| Less: Indirect material (60800 DLH @1.30) | 79040 | |||||
| Less: Rent expense | 139000 | |||||
| Maintenance expense | 39060 | |||||
| Req 2. | ||||||
| Maintenance | DLH | |||||
| Cost | ||||||
| High activity | 39060 | 60800 | ||||
| Low activity | 36020 | 45600 | ||||
| Change | 3040 | 15200 | ||||
| Maintenance variable cost per DLH = Change in cost / Change in DLH | ||||||
| 3040 /15200 = 0.20 per DLH | ||||||
| Total Maintenance cost at 60800 DLh | 39060 | |||||
| Less: Variable cost (60800*0.20) | 12160 | |||||
| Fixed Maintenance cost | 26900 | |||||
| Maintenance cost function, C (X) = 26900+0.20X | ||||||
| Req 3. | ||||||
| Total Overheads at 50160 DLH: | ||||||
| Indirect material (50160*1.30) | 65208 | |||||
| Rent expense | 139000 | |||||
| Maintenance Cost (26900+0.20*50160) | 36932 | |||||
| Total Overheads at 50160 DLH: | 241140 | |||||
ekkarill92 answered 2 years agoRelated Solutions
Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably...
Sawaya Co., Ltd., of Japan is a manufacturing company whose
total factory overhead costs fluctuate considerably from year to
year according to increases and decreases in the number of direct
labor-hours worked in the factory. Total factory overhead costs at
high and low levels of activity for recent years are given
below:
Level of Activity
Low
High
Direct labor-hours
47,100
62,800
Total factory
overhead costs
$
249,500
$
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The factory overhead costs above consist of indirect materials,
rent, and...
Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably...
Sawaya Co., Ltd., of Japan is a manufacturing company whose
total factory overhead costs fluctuate considerably from year to
year according to increases and decreases in the number of direct
labor-hours worked in the factory. Total factory overhead costs at
high and low levels of activity for recent years are given
below:
Level of Activity
Low
High
Direct labor-hours
74,700
99,600
Total factory overhead costs
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$
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The factory overhead costs above consist of indirect materials,
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Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably...
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year according to increases and decreases in the number of direct
labor-hours worked in the factory. Total factory overhead costs at
high and low levels of activity for recent years are given
below:
Level of Activity
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High
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Total factory overhead costs
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