Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhe

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 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 62,700 High 83,600 Direct labor-hours Total factory overhead costs $278,260 $315,880 The factory overhead costs above consist of indirect materials, rent, and maintenance. he company has analyzed these costs at the 62,700-hour level of activity as follows Indirect materials (variable) Rent (fixed) Maintenance (mixed) $100,320 133,000 44,940 Total factory overhead costs $ 278,260 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 $315,880 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 $315,880 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) Maintenance cost at high level of activity

Explanation / Answer

1) Calculate maintenance cost at high level :

Maintenance cost at high level of activity = $49120

2) Estimate cost formula :

Y = 32400+0.20X

3) Total factory overhead cost = 32400+(68970*.20) = $46194

Indirect material (100320/62700*83600) 133760 Rent 133000 Maintenance (mixed) 49120 Total cost 315880

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