Question

A Manufacturing Company Whose Total Factory Overhead Cost Fluctuate Considerably From Year ... Question: A manufacturing company whose total factory overhead cost fluctuate considerably from year to yea... A manufacturing company whose total factory overhead cost 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 Low: 52800, High: 70,400, Total factory overhead cost $279,380 Low, and $316,340 High. The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 52,800-hour level of activity as: indirect materials (variable) $89,760, rent (fixed) 138,000, maintenance (mixed) 51,620, total factory overhead cost: $279,380. Estimate how much of the $316,340 factory overhead cost at the high level of activity consist of maintenance cost. First determine how much of $316,340 consist of indirect materials and rent. Maintenance cost at high level of activity is Using the high-low method estimate a cost formula for maintenance (round the variable cost per DLH to 2 decimal places) High level of activity, low level of activity, change, variable cost element fixed cost element Y=------+--------x What total factory overhead cost would you expect the company to incur at an operating level of 58,080 direct labor-hours?

Answer 1

			Variable	Fixed	Mixed
	Activity level(hour)	Factory overhead	Indirect Materials	Rent	Maintenance
	52800	$279,380	$89,760	$138,000	$51,620
	70400	$316,340
	Indirect material at 70400 hours	$                  119,680	(89760/52800)*70400)
	Rent at 70400 hours level	$138,000
	Maintenance cost at70400 level	$58,660	(316340-119680-138000)
	Total Factory overhead at 70400	$                  316,340
	Maintenance cost at high level	$58,660
	Maintenance cost at low level	$51,620
	Y=a+bX
	Y2=High Level
	Y1=Low level
	Y2=a+bX2
	Y1=a+bX1
	(Y2-Y1)=b(X2-X1)
	b=(Y2-Y1)/(X2-X1)
	In this case,
	b=(Y2-Y1)/(X2-X1)
	b=(58660-51620)/(70400-52800)
	b=	0.40
	Y2=a+bX2
	58660=a+0.4*70400
	a=58660-(0.4*70400)	30500
	The Required Formula for Maintenance cost:
	Y=30500+0.4X
	Y=Maintenance cost
	X=activity level
	At operating level58080 hours;
	Maintenance cost=30500+0.4*58080	$                     53,732
	Variable indirect material	$                     98,736	(89760/52800)*58080
	Rent	$138,000
	Total factory overhead cost	$                  290,468