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 (in Japanese yen, denoted by ¥) at high and low levels of activity for recent years are given below: Level of Activity Low High Direct labor-hours 5,000 6,000 Total factory overhead costs ¥4,250,000 ¥4,500,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000-hour level of activity as follows: Indirect materials (Variable) ¥1,000,000 Rent (Fixed) 2,000,000 Maintenance (Mixed) 1,250,000 Total factory overhead costs ¥4,250,000 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. Required: a) Estimate how much of the ¥4,500,000 factory overhead cost at the high level of activity consists of maintenance cost. b) Using the high-low method of cost analysis, estimate a cost formula for maintenance. c) What total factory overhead costs would you expect the company to incur at an operating level of 5,200 direct labor-hours? please answer this question in detail thank you !
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Sawaya Co., Ltd., of Japan is a manufacturing company whose total
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 (in Japanese yen,
denoted by ¥) at high and low levels of activity for recent years are given below:
Level of Activity
Low High
Direct labor-hours 5,000 6,000
Total factory overhead costs ¥4,250,000 ¥4,500,000
The factory overhead costs above consist of indirect materials, rent, and maintenance. The
company has analyzed these costs at the 5,000-hour level of activity as follows:
Indirect materials (Variable) ¥1,000,000
Rent (Fixed) 2,000,000
Maintenance (Mixed) 1,250,000
Total factory overhead costs ¥4,250,000
To have data available for planning, the company wants to break down the maintenance cost
into its variable and fixed cost elements.
Required:
a) Estimate how much of the ¥4,500,000 factory overhead cost at the high level of activity consists
of maintenance cost.
b) Using the high-low method of cost analysis, estimate a cost formula for maintenance.
c) What total factory overhead costs would you expect the company to incur at an operating level of
5,200 direct labor-hours?
please answer this question in detail thank you !
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