Problem 2-17 High-Low Method; Predicting Cost [LO2-4, LO2-5]

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. Total factory overhead costs at high and low levels of activity for recent years are given below Level of A Low 80,900 Direct labor-hours Total factory overhead costs 81,200 5 275,220 311,780 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 80,900-hour level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) S 85,280 139,000 50,950 Total factory overhead costs 5 275,220 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 $311,760 factory overhead cost at the high level of activity consists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the 5311,760 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Do not round intermediate calculations.) cost at high level of