MH 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:

Level of Activity

LowHigh

Machine-hours . . . . . . . . . . . . . . . . 60,00085,000

Total factory overhead costs . . $14,250,000$17,625,000

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:

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

fixed cost elements.

Required: SHOW YOUR WORK

1. Estimate how much of the factory overhead cost of $17,625,000 at the high level of activity consists

of maintenance cost.

2. Using the high-low method, estimate a cost formula for maintenance.

3. Whattotaloverhead costs would you expect the company to incur at an operating level of 70,000

machine-hours?