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 Activ Low 51,000 High 68,000 Direct labor-hours Total factory overhead costs 267,200 $299,500 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 51,000-hour level of activity as follows Indirect materials (variable) Rent (fixed) Maintenance (mixed) $ 76,500 136,000 54,700 Total factory overhead costs $267,200 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 $299,500 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 $299,500 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

Answer 1

	1
			Low Level	High Level		Indirect Material (Variable):
		Total FOH Cost	267200	299500		Cost at 51000	76500
		Less: Rent Cost(Fixed)	136000	136000		Activity Level in DLH	51000
		Less: Indirect Material (Variable)	76500	102000		Cost per DLH	1.50
		(51000*1.50)/(68000*1.5)
		Maintainance Cost(Mixed)	54700	61500
		Answer is 61500/-
	2		Direct Labor Hours	Maintainance Cost
		High Level of Activity	68000	299500
		Low Level of Activity	51000	267200
		Change	17000	32300
		Variable Cost Element	1.90	Per DLH	(32300/17000)
		Fixed Cost Element	170300		(299500)-(1.90*68000)
		Y=170300+1.90X
	3	Operating Level at 56100:
		Y=170300+1.90(56100)
		276890