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 61,000 Total Factory Overhead Cost 16,625,000 14,000,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 61000 hour level of activity as follows: Indirect Materials (Variable) Rent (Fixed) Maintenance (Mixed) 1,998,000 Total Factory overheads Cost 14,000,000 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements 90,000 5,002,000 7,000,000 Required: 1. Estimate how much of the $16,625,000 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 $16,625,000 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) 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?
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 61,000 Total Factory Overhead Cost 16,625,000 14,000,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 61000 hour level of activity as follows: Indirect Materials (Variable) Rent (Fixed) Maintenance (Mixed) 1,998,000 Total Factory overheads Cost 14,000,000 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements 90,000 5,002,000 7,000,000 Required: 1. Estimate how much of the $16,625,000 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 $16,625,000 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) 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?
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
61,000
Total Factory Overhead Cost 16,625,000
14,000,000
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these
costs at the 61000 hour level of activity as follows:
Indirect Materials (Variable)
Rent (Fixed)
Maintenance (Mixed)
1,998,000
Total Factory overheads Cost 14,000,000
To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed
cost elements
90,000
5,002,000
7,000,000
Required:
1. Estimate how much of the $16,625,000 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 $16,625,000 consists of indirect materials and rent.
Think about the behavior of variable and fixed costs!)
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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