Colby Limited is a manufacturing company whose total factory overhead costs fluctuate somewhat from year to year, according to the
number of machinehours worked in its production facility. These costs at high and low levels of activity over 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
machinehours level of activity as follows:
For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
Estimate how much of the factory overhead cost of $ at the high level of activity consists of maintenance cost.
Maintenance cost
Using the highlow method, estimate a cost formula for maintenance.
What total overhead costs would you expect the company to incur at an operating level of machinehours?
