Question

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	$	303,860	$	348,680

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 74,700-hour level of activity as follows:

Indirect materials (variable)	$	112,050
Rent (fixed)		139,000
Maintenance (mixed)		52,810
Total factory overhead costs	$	303,860

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 $348,680 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 $348,680 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.)

     

       

3.	What total factory overhead costs would you expect the company to incur at an operating level of 82,170 direct labor-hours? (Do not round intermediate calculations.)

     

Answer 1