Colby Limited is a manufacturing company whose total factory overhead costs fluctuate somewhat from year...
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Accounting
Colby Limited is a manufacturing company whose total factory overhead costs fluctuate somewhat from year to year, according to the number of machine-hours worked in its production facility. These costs at high and low levels of activity over recent years are given below:
Level of Activity
Low
High
Machine-hours
82,000
92,000
Total factory overhead costs
$
35,230,000
$
37,380,000
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 82,000 machine-hours level of activity as follows:
Indirect materials (variable)
$
12,546,000
Rent (fixed)
13,600,000
Maintenance (mixed)
9,084,000
Total factory overhead costs
$
35,230,000
For planning purposes, the company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the factory overhead cost of $37,380,000 at the high level of activity consists of maintenance cost.
2. Using the highlow method, estimate a cost formula for maintenance.
3. What total overhead costs would you expect the company to incur at an operating level of 87,000 machine-hours?
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