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		67,500			90,000
Total factory overhead costs	$	314,500		$	364,000

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 67,500-hour level of activity as follows:

Indirect materials (variable)	$	108,000
Rent (fixed)		136,000
Maintenance (mixed)		70,500
Total factory overhead costs	$	314,500

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 $364,000 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 $364,000 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)

1. Maintenance cost at high level of activity = ________________

Answer 1

1	Level of Activity	Low	High
	Direct labor-hours	67,500	90,000
	Indirect materials (variable)	$1,08,000	$1,44,000	($108,000 x 90,000/60,000)
	Rent (fixed)	$1,36,000	$1,36,000
	Maintenance (mixed)	$70,500	$84,000	(subtract)	($364,000 - $144,000 - $136,000)
	Total factory overhead costs	$3,14,500	$3,64,000