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 (in Japanese yen, denoted V) at high and low levels of activity for recent years are given below:
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000 hour level of activity as follows:
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 ?Yl7,625,000 factory overhead cost at the high level of activity consists of maintenance cost.
2. Using the high low method, estimate a cost formula for maintenance.
3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 directlabor hours?
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