6-5 Applying the High-Low Method and Cost Behaviour [LO2 - CC9] Sawaya Co., Ltd., of Japan, is a manufacturing company whose total factory overhead costs fluctuate con- siderably from year to year according to increases and decreases in the number of direct labour-hours worked in the factory. Total factory overhead costs (in Japanese yen, denoted ) at high and low levels of activity for recent years are provided below: Direct labour-hours Total factory overhead costs Level of Activity Low High 100,000 12,450,000 150,000 15,275,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 100,000-hour level of activity as follows: Indirect materials (V) Rent (F) Maintenance (M) Total factory overhead costs V = variable; F = fixed; M = mixed. 4,200,000 5,500,000 2,750,000 12,450,000 To have data available for planning, the company wants to break the maintenance cost down into its variable and fixed cost elements. Required: 1. Estimate how much of the 15,275,000 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 15,275,000 consists of indirect materials and rent. Think about the behaviour of variable and fixed costs!) 2. By means of the high-low method of cost analysis, estimate a cost formula for maintenance. 3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labour-hours