Question

QUESTION1. Galaxy Company whose total factory overhead coats 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 60,000 High 80,000 $312,000 Machine hours Total Factory Overhead Costs $274,000 The factory Overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 60,000 machine-hours level of activity as follow: Indirect Materials (Variables) Rent (fixed) Maintenance (mixed Total Factory Overhead Costs $90,000 130,000 5274,000 For planning purposes, the company wants to break down the maintenance costs into its Variable and Fixed cost elements. Required Estimate how much of the factory overhead cost of $312,000 at the high level of activity consists of maintenance costs. (Hints: to do this, it might be helpful to first determine how much of the $312,000 cost consist of indirect material and rents. Think about the behavior of variable and fixed costs. Using the high low method, estimate a cost formula for maintenance What total overhead cost would you expect the company to incur at an operating level of 75,000 machine hours? 1. 2. 3.

Answer 1