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 ¥) at high and low levels of activity for recent years are given below:
Level of Activity
Low High
Direct labor-hours 58,500 78,000
Total factory overhead costs ¥281,350 ¥322,300
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 58,500-hour level of activity as follows:
Indirect materials (variable) ¥87,750
Rent (fixed) ¥124,000
Maintenance (mixed) ¥69,600
Total factory overhead costs ¥281,350
To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements.
Requirement 1: Estimate how much of the ¥322,300 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 ¥322,300 consists of indirect materials and rent. Think about the behaviour of variable and fixed costs!)