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

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 53,100-hour level of activity as follows:

To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements.

Estimate how much of the $307,580 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 $307,580 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.)

        

Using the high-low method, estimate a cost formula for maintenance. (Do not round intermediate calculations.)

        
        

What total factory overhead costs would you expect the company to incur at an operating level of 58,410 direct labor-hours? (Do not round intermediate calculations.)

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:

Explanation / Answer

1

Estimate how much of the $307,580 factory overhead cost at the high level of activity consists of maintenance cost.

2

Using the high-low method, estimate a cost formula for maintenance

high-low method, analysis of maintenance cost

Varible cost = Change in cost / Change in Activity

=3540/17700

=0.2

Fixed cost element

Therefor the cost formulla is 27900 +0.2 per machine hour

y= 27900+0.2 per Machine hour

3

total factory overhead costs would you expect the company to incur at an operating level of 58,410 direct labor-hours

Level Of Activity Particular 53100 70800 Total Factory OH Cost 270410 307580 Deduct : Indirect Material @1.9 per MH 100890 134520 Rent 131000 131000 Maintainance Cost 38520 42060

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