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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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