|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 ¥) at high and low levels of activity for recent years, are provided below:|
|Level of Activity|
|Total factory overhead costs||¥ 12,462,000||¥ 14,238,000|
|The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 170,000-hour level of activity as follows:|
|Indirect materials (V)||¥||5,100,000|
|Total factory overhead costs||¥||12,462,000|
|V = variable; F = fixed; M = mixed.|
|To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements.|
|1.||Estimate how much of the ¥14,238,000 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 ¥14,238,000 consists of indirect materials and rent. Think about the behaviour of variable and fixed costs!)|
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