Question

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Colby Limited is a manufacturing company whose total factory overhead costs fluctuate somewhat from year to year, according to the number of machine-hours worked in its production facility. These costs at high and low levels of activity over recent years are given below Level of Activity Low High Machine-hours 50,000 75,000 Total factory overhead costs $14,250,000 $17,625,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) 5,000,000 6,000,000 3,250,000 Total factory overhead costs 14,250,000 For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.

Answer 1

1
Total factory overhead costs	17625000
Less: Indirect materials	7500000	=5000000/50000*75000
Less: Rent	6000000
Maintenance cost	4125000
2
	Maintenance cost	Machine hours
High	4125000	75000
Low	3250000	50000
Difference	875000	25000
Variable cost	35	=875000/25000
Fixed cost	1500000	=4125000-(75000*35)
Y = $1500000+ $35X
3
Indirect materials	7000000	=5000000/50000*70000
Rent	6000000
Maintenance cost	3950000	=1500000+(70000*35)
Total factory overhead costs	16950000