Question
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
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 | 69,600 | 92,800 | |||
Total factory overhead costs | $ | 261,360 | $ | 298,480 | |
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 69,600-hour level of activity as follows: |
Indirect materials (variable) | $ | 76,560 |
Rent (fixed) | 123,000 | |
Maintenance (mixed) | 61,800 | |
Total factory overhead costs | $ | 261,360 |
To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. |
Required: |
1. | Estimate how much of the $298,480 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 $298,480 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) |
2. | Using the high-low method, estimate a cost formula for maintenance. (Do not round intermediate calculations. Round "Variable cost element" to 2 decimal places.) |
3. | What total factory overhead costs would you expect the company to incur at an operating level of 76,560 direct labor-hours? (Do not round intermediate calculations.) |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started