A manufacturing company whose total factory overhead cost fluctuate considerably

Question

A manufacturing company whose total factory overhead cost 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 Low: 52800, High: 70,400, Total facory overhead cost $279,380 Low, and $316,340 High. The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 52,800-hour level of activity as: indirect materials (variable) $89,760, rent (fixed) 138,000, maintenance (mixed) 51,620, total factory overhead cost: $279,380. Estimate how much of the $316,340 factory overhead cost at the high level of activity consist of maintenance cost. First determine how much of $316,340 consist of indirect materials and rent. Maintenance cost at high level of activity is?

Explanation / Answer

Maintenance cost at high level of activity = 316340-(89760/52800*70400)-138000= $58660

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