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CoursHeroTranscribedText: PROBLEM 2-17 High-Low Method; Predicting Cost [LO2-4, LO2-5] Sawaya Co., Lid., 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 labor- hours worked in the factory. Total factory overhead costs at high and low levels of activity for recent years are given below. Level of Activity Low High Direct labor-hours . ... . . . . . 50,000 75,000 Total factory overhead costs . . ... . . . $14,250,000 $17,625,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000-hour level of activity as follows: Indirect materials (variable) $ 5,000,000 Rent (fixed) . ... 6,000,000 Maintenance (mixed) . . . .. 3,250,000 Total factory overhead costs $14,250,000 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. 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. Think about the behavior of variable and fixed costs!) 2. Using the high-low method, estimate a cost formula for maintenance. 3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor-hours

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