Question: Sawaya Co., Ltd., of Japan is a
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 labour-hours worked in the factory. Total factory overhead costs (in Japanese yen, denoted Â¥) 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 ¥17,625,000 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 ¥17,625,000 consists of indirect materials and rent. Think about the behaviour of variable and fixed costs!) 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 direct labour-hours?
Transcribed Image Text:
Level of Activity Low High Direct labor-hours. ... Total factory overhead costs 50,000 75,000 ¥14,250,000 ¥17,625,000 Indirect materials (variable).. Rent (fixed)..... Maintenance (mixed). ४ 5,000,000 6,000,000 3,250,000 Total factory overhead costs ¥14,250,000
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