I have been stuck on this cost accounting question for a while. Can someone explain the steps and method to solve this? Thanks
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 Activity
Low High
Direct labor-hours 56,400 75,200
Total factory overhead costs $ 268,260 $ 303,980
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 56,400-hour level of activity as follows:
Indirect materials (variable) $ 78,960
Rent (fixed) 135,000
Maintenance (mixed) 54,300
Total factory overhead costs 268,260
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 $303,980 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 $303,980 consists of indirect materials and rent. Think about the behavior of variable and fixed 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 62,040 direct labor-hours? (Do not round intermediate calculations.)
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 Activity
Low High
Direct labor-hours 56,400 75,200
Total factory overhead costs $ 268,260 $ 303,980
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 56,400-hour level of activity as follows:
Indirect materials (variable) $ 78,960
Rent (fixed) 135,000
Maintenance (mixed) 54,300
Total factory overhead costs 268,260
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 $303,980 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 $303,980 consists of indirect materials and rent. Think about the behavior of variable and fixed 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 62,040 direct labor-hours? (Do not round intermediate calculations.)
