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 labor hours worked in the factory. The following are the total factory overhead costs at high and low levels of activity for the last few years: |
Activity Level | |||||
Low | Alto | ||||
Direct labor hours | 47,700 | 63,600 | |||
Total factory overhead costs | ps | 237,490 | ps | 264,520 | |
Factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 47,700-hour activity level as follows: |
Indirect materials (variable) | ps | 66,780 |
Rent (fixed) | 129,000 | |
Maintenance (mixed) | 41,710 | |
Total factory overhead costs | ps | 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 factory overhead cost of $264,520 at the high activity level corresponds to holding cost. ( 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 fixed and variable 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.) |
Introduction to Managerial Accounting
ISBN: 978-1259105708
5th Canadian edition
Authors: Peter C. Brewer, Ray H. Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan