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:Direct Labor Hours50,00075,000Total Factory Overhead Cost16,250,00020,000,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000-hour level of activity as follows:Indirect Materials (Variable)5,000,000Rent (Fixed)8,000,000Maintenance (Mixed)3,250,000Total Factory overheads Cost16,250,000 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elementsRequired:1. Estimate how much of the 20,000,000 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.3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor-hours?

The high-low method is used to separate the fixed and variable costs from the mixed costs of…

Answered: Sawaya Co., Ltd., of Japan is a…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

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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:

Direct Labor Hours	50,000	75,000
Total Factory Overhead Cost	16,250,000	20,000,000

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000-hour level of activity as follows:

Indirect Materials (Variable)	5,000,000
Rent (Fixed)	8,000,000
Maintenance (Mixed)	3,250,000
Total Factory overheads Cost	16,250,000

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 20,000,000 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.

3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor-hours?

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