Echeverria S.A. is an Argentinian manufacturing company whose total factory overhead costs fluctuate somewhat from year to year, according to the number of machine-hours worked in its production facility. These costs (in Argentinian pesos) at high and low levels of activity over recent years are given below:

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 60,000 machine-hours level of activity as follows:

For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the factory overhead cost of 312,000 pesos 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 overhead costs would you expect the company to incur at an operating level of 65,000 machine-hours?

Transcribed Image Text:

Level of Activity Low 60,000 High 80,000 312000 pesos 274000 pesos Rent (fixed).. Maintenance (mixed)... Total factory overhead costs . 90,000 pesos 30,000 54,000 274000 pesos