The factory overhead of Best Production Ltd has fluctuated significantly from year to year in relation to the direct machine hours. The average costs at the average high and low levels of activity during the past 3 years are as follows.

Factory overhead consists of indirect materials, repairs and maintenance, rates and taxes, and power. The company has analysed these costs at the low level of activity and determined that the costs are incurred as follows at that level.

Required
(a) Determine the cost function for factory overhead using the format y = a+ bx.
(b) If direct machine hours of 150 000 are expected for the next year, what is the estimate of factory overhead?
(c) Calculate how much of the factory overhead is maintenance cost at the high activity level of 240 000 direct machine hours.

Transcribed Image Text:

Level of activity High Low Factory overhead $1 680 000 $1 200 000 Direct machine hours 240 000 160 000