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		50,000		75,000
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-hour level of activity as follows:

Indirect materials (variable)	$	5,000,000
Rent (fixed)		6,000,000
Maintenance (mixed)		3,250,000
Total factory overhead costs	$	14,250,000

To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements.

1.	Estimate how much of the $17,625,000 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 $17,625,000 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!)

2.	Using the high-low method, 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 labor-hours?