Item2

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Item 2

Colby Limited is a 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 at high and low levels of activity over recent years are given below:

	Level of Activity
	Low	High
Machine-hours		68,200			98,200
Total factory overhead costs	$	39,091,200		$	47,071,200

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 68,200 machine-hours level of activity as follows:

Indirect materials (variable)	$	12,617,000
Rent (fixed)		16,700,000
Maintenance (mixed)		9,774,200
Total factory overhead costs	$	39,091,200

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 $47,071,200 at the high level of activity consists of maintenance cost.

2. Using the highlow method, estimate a cost formula for maintenance.

3. What total overhead costs would you expect the company to incur at an operating level of 73,200 machine-hours?