Question

Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overthead 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 90,400 351,900 Direct labor-hours 67,800 306,700 Total factory overhead costs The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these oosts at the 67,800-hour level of activity as follows: 122,040 Indirect materials (variable) 139,000 Rent (fixed) Maintenance (mixed) 45,660 306,700 Total factory overhead costs 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 $351,900 factory overhead cost at the high level of activity consists of maintenance cost. (Hnt: To do this, it may be helpful to first detemine how much of the $351,900 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) Maintenance cost at high level of activity 2. Using the high-low method, estimate a cost fommula for maintenance. (Do not round intermediate calculations. Round "Variable cost element" to 2 decimal places.) Direct Labor- Maintenance Hours Cost High level of activity Low level of activity Change Variable cost element per DLH Fixed cost element 3. What total factory overhead costs would you expect the company to incur at an operating level of 74,580 direct labor-hours? (Do not round intermediate calculations.) Total factory overhead cost

Answer 1

1)	units				67,800	90,400
	indirect materials		1.8		122040	162720
	Rent				139,000	139,000
	Maintenance				45,660	50,180
	total factory overhead costs				306700	351,900
	Maintenace cost at high level of activity				50,180
				DLH's	Maintenance
2)					cost
	High level of activity			90,400	50,180
	Low level of activity			67,800	45,660
	Change			22,600	4,520
	Variable cost element			0.2
	Fixed cost element			32100
	Y=	32100	+	0.2	X
3)	Total factory overhead cost			320260
	working notes for Q3)
	units				74,580
	indirect materials		1.8		134244
	Rent				139,000
	Maintenance				47,016
	total factory overhead costs				320260