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 Level of Activity Low 47,700 High 63,600 Total factor overhead costs $ 237,490 $264,520 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 47,700-hour level of activity as follows: Indirect materials (variable) $66,780 Rent (fixed) Maintenance (mixed) $129,000 $41,710 Total factory overhead costs $237,490 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 $264,520 factory overhead costs at the high level of activity consist of maintenance costs. (Hint: To do this, it may be helpful to first determine how much of the $264,520 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. (Do not round intermediate calculations.) 3. What total factory overhead costs would you expect the company to incur at an operating level of 52,470 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: Direct labor hours Level of Activity Low 47,700 High 63,600 Total factor overhead costs $ 237,490 $264,520 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 47,700-hour level of activity as follows: Indirect materials (variable) $66,780 Rent (fixed) Maintenance (mixed) $129,000 $41,710 Total factory overhead costs $237,490 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 $264,520 factory overhead costs at the high level of activity consist of maintenance costs. (Hint: To do this, it may be helpful to first determine how much of the $264,520 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. (Do not round intermediate calculations.) 3. What total factory overhead costs would you expect the company to incur at an operating level of 52,470 direct labor hours? (Do not round intermediate calculations.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
Level of Activity
Low
47,700
High
63,600
Total factor overhead costs $ 237,490 $264,520
The factory overhead costs above consist of indirect materials, rent, and maintenance. The
company has analyzed these costs at the 47,700-hour level of activity as follows:
Indirect materials (variable) $66,780
Rent (fixed)
Maintenance (mixed)
$129,000
$41,710
Total factory overhead costs $237,490
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 $264,520 factory overhead costs at the high level of activity
consist of maintenance costs. (Hint: To do this, it may be helpful to first determine how much
of the $264,520 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. (Do not round
intermediate calculations.)
3. What total factory overhead costs would you expect the company to incur at an operating
level of 52,470 direct labor hours? (Do not round intermediate calculations.)
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