Sawaya Co., Ltd., of Japan, is a manufacturing company whose total factory overhead costs fluctuate considerably from
Question:
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 labour-hours worked in the factory. Total factory overhead costs (in Japanese yen, denoted ?) at high and low levels of activity for recent years, are provided below:
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 100,000-hour level of activity as follows:
Indirect materials (V).........................................? 4,200,000Rent (F)...................................................................5,500,000Maintenance (M)...................................................2,750,000Total factory overhead costs...........................?12,450,000V = variable; F = fixed; M = mixed.
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 ?15,275,000 factory overhead cost at the high level of activity consists of maintenance cost.
2. By means of the high?low method of cost analysis, 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 labour-hours?
Step by Step Answer:
Introduction to Managerial Accounting
ISBN: 978-1259105708
5th Canadian edition
Authors: Peter C. Brewer, Ray H. Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan