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?