Problems 237 PROBLEM 5-16 High-Low Analysis and Cost Behavior (LOI, LOJ) Susume Corporation of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably mrom year to year according to increases and decreases in the number of direct labor hours worked in the factory. Total factory overhead costs in Japanese yen, denoted by V) at high and low levels of activity for recent years are given below: CHECK FIGURE (2) V750.000 per year plus 375 per DLH Direct labor-hours Total factory overhead costs .......... Level of Activity Low High 4,000 5,000 15.250,000 $17,625,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 4,000-hour level of activity as follows: Indirect materials (V)..... Rent (F) ................ Maintenance (M).......... Total factory overhead costs.... | 8,000,000 5,000,000 2.250,000 15,250,000 V = variable; F = fixed; M = mixed. To have data available for planning, the company wants to break down the maintenance cost into its vari able and fixed cost elements. Required: 1. Estimate how much of the V17,625,000 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 V17,625,000 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) 2. Using 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 4.800 direct labor-hours? CHECK FIGURE