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		69,600		92,800
Total factory overhead costs	$	261,360	$	298,480

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 69,600-hour level of activity as follows:

Indirect materials (variable)	$	76,560
Rent (fixed)		123,000
Maintenance (mixed)		61,800
Total factory overhead costs	$	261,360

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 $298,480 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 $298,480 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)

     

2.	Using the high-low method, estimate a cost formula for maintenance. (Do not round intermediate calculations. Round "Variable cost element" to 2 decimal places.)

     
       

3.	What total factory overhead costs would you expect the company to incur at an operating level of 76,560 direct labor-hours? (Do not round intermediate calculations.)

     

Answer 1

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Final answers are marked in yellow.

A B C D E F G 1 2 Direct labor-hours Total factory overhead costs 69600 261360 92800 298480 3 st 5 Hour 69600 6 7 76560 8 123000 Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 9 61800 261360 10 11 12 13 1 Activity 69600 92800 14 15 102080 16 123000 Indirect materials Rent Maintenance total factory overhead costs 76560 123000 61800 261360 17 73400 298480 18 19 20 Maintenace cost at high level of activity 73400 21 22 N 23 DLH's Maintenance Cost 92800 73400 69600 61800 23200 11600 High level of activity Low level of activity Change 24 25

A B C D E F 26 27 Variable cost element Fixed cost element 0.5 27000 28 29 30 Y= 27000 + 0.5 X 31 32 33 3 Activity 76560 34 35 842161 36 Indirect materials Rent Maintenance total factory overhead costs 123000 65280 37 38 2724961 39

For calculation ref:

A B С D E TI 1 Direct labor-hours Total factory overhead costs 69600 261360 92800 298480 5 Hour 69600 2 3 4 5 6 7 8 9 Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 76560 123000 61800 =SUM(C7:09) 10 11 12 13 1 Activity =C2 =D2 14 15 Indirect materials =C7 |=C15/C13*D13 16 Rent 1=C8 =C16 17 Maintenance =C9 =D18-D15-D16 18 total factory overhead costs =SUM(C15:C17) 298480 19 20 Maintenace cost at high level of activity =D17 21 22 2 DLH'S Maintenance Cost 23 High level of activity =D2 =D17 24 Low level of activity =C2 =C17 25 Change =C23-C24 =D23-D24 26

A B с D E F 26 27 Variable cost element Fixed cost element =D25/C25 =D24-C24*C27 28 29 30 Y= 1=C28 + =C27 X 76560 31 32 33 3 Activity 34 35 Indirect materials 36 Rent 37 Maintenance 38 total factory overhead costs 39 I=C15/c13*033 1=C8 =C30+E30*C33 =SUM(C35:C37)