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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.)

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