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Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably from year to2. Using the high-low method, estimate a cost formula for maintenance. (Do not round intermediate calculations. Round Variab

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Answer #1
Indirect materials per direct labor hour = Indirect materials at low level of activity / Direct labor hours at low level of activity = 83580 / 59700 1.40 per DLH
Required 1 :
Total factory overhead costs at high level of activity 306280
(-) Indirect materials at high level of activity [ 1.40 * 79600 ] 111440
(-) Rent at high level of activity 130000
Maintenance cost at high level of activity 64840
Required 2 :
Direct labor-hours Maintenance cost
High level of activity 79600 64840
Low level of activity 59700 56880
Change 19900 7960
Variable cost element [ Change in maintenance cost / Change in direct labor hours = 7960 / 19900 ] 0.40 per DLH
Fixed cost element ( Refer working note ) 33000
Working note :
Let us calculate the fixed cost element using the data of low level of activity
Total maintenance cost = ( Variable cost element per DLH * DLH ) + Fixed cost element
56880 = ( 0.40 * 59700 ) + Fixed cost element
56880 = 23880 + Fixed cost element
Fixed cost element = 56880 - 23880 33000
Y = 33000 + 0.40 X
Required 3 :
65670 DLHs
Indirect materials ( 65670 * 1.40 ) 91938
Rent 130000
Maintenance cost [ 33000 + ( 0.40 * 65670 ) ] 59268
Total factory overhead cost 281206
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