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 High Direct labor-hours 61,500 82,000 Total factory overhead costs $ 241,600 $ 270,300 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 61,500-hour level of activity as follows: Indirect materials (variable) $ 73,800 Rent (fixed) 123,000 Maintenance (mixed) 44,800 Total factory overhead costs $ 241,600 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 $270,300 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 $270,300 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. (Round the Variable cost per DLH to 2 decimal places.)
3. What total factory overhead costs would you expect the company to incur at an operating level of 67,650 direct labor-hours? (Do not round intermediate calculations.)