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

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 Activ Low 64,20085,600 High Direct labor-hours Total factory overhead costs $263,560 $302,080 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 64,200-hour level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) $ 96,300 123,000 44,260 Total factory overhead costs $263,560 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 $302.080 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 $302.080 consists of indirect materials and rent Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) Maintenance cost at high levei of activity

Explanation / Answer

1 Maintenance cost at high level of activity=302080-(96300/64200*85600)-123000= $50680 2 Direct labor hours Maintenance cost High level activity 85600 50680 Low level activity 64200 44260 Change 21400 6420 Variable cost element 0.3 =6420/21400 Fixed cost element 25000 Y=25000+$0.3X 3 Total factory overhead cost=(96300/64200*70620)+(0.3*70620)+25000+123000= $275116

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