Reference no: EM132998344

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                               47,400                   63,200

Total factory overhead costs                $266,740                  $299,920

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 47,400-hour level of activity as follows:

Indirect materials (variable) $75,840

Rent (fixed) 134,000

Maintenance (mixed) 56,900

Total factory overhead costs$266,740

To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements.

Required:

Problem 1: Estimate how much of the $299,920 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 $299,920 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!)