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 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:

	Level of Activity
		Low			High
Direct labour-hours		97,000			147,000
Total factory overhead costs		12,364,000			15,251,000

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 97,000-hour level of activity as follows:

Indirect materials (V)		5,141,000
Rent (F)		4,979,000
Maintenance (M)		2,244,000
Total factory overhead costs		12,364,000

V = variable; F = fixed; M = mixed.

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 15,251,000 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 15,251,000 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. (Round the "Variable cost" to 2 decimal places.)

3. What total factory overhead costs would you expect the company to incur at an operating level of 67,000 direct labour-hours? (Do not round intermediate calculations.)

Prev

Question 2 of 5 Total2 of