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:

Machine-hours 50,000 75,000

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:

Total factory overhead costs

$14,250,000 $ 17,625,000

Indirect materials (variable)

Rent (fixed)

Maintenance (mixed)

$ 5,000,000

6,000,000

3,250,000 14,250,000

Total factory overhead costs

$

For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.

Required:

1. Estimate how much of the factory overhead cost of $17,625,000 at the high level of activity consists of maintenance cost. (Hint: First determine how much of the $17,625,000 cost consists of indirect materials and rent. Think about the behaviour of variable and fixed costs.) (Do not round intermediate calculations.)

2. Using the highlow method, estimate a cost formula for maintenance. (Round variable cost to 1 decimal place and fixed cost to the nearest dollar amount.)

3. What total overhead costs would you expect the company to incur at an operating level of 70,000 machine-hours? (Do not round intermediate calculations.)