Question 1

Zmyco Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs
fluctuate significantly from year to year according to increases and decreases in the number of
direct labor-hours worked in the factory. The data given below

Months Direct Labor Total Factory

Hours Overhead
Costs
1 48,000 $279,888
2 49,300 $281,649
3 50,100 $282,981
4 58,800 $298,643
5 74,030 $499,746
6 99,522 $595,525
7 67,400 $489,443
8 64,500 $482,222
9 62,300 $479,482
10 80,204 $514,461
11 86,339 $546,746
12 97,210 $585,738
13 46,302 $275,872

The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has
analyzed these costs at the 40,000-hour level of activity as follows:

Particulars Amount
Indirect material $ 7,000,000
Rent 300,000
Maintenance cost 4,530,000
Total factory overhead cost 11,830,000

To have data accessible for planning, the company wants to break down the maintenance cost into its
variable and fixed cost elements.

Requirement:

1. Use the high-low method to estimate the fixed and variable portions of overhead costs based on
direct labor hour.
2. 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.
3. What total factory overhead costs would you expect the company to incur at an operating level of
70,000 direct labor-hours?