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    Variable cost element, fixed cost element & total overhead

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    Sawaya Co., Ltd., 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 (in Japanese yen, denoted ¥) at high and low levels of activity for recent years are given below:

    Level of Activity
    Low High
    Direct labor-hours 69,300 92,400
    Total factory overhead costs ¥269,610 ¥308,880
    ________________________________________

    The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 69,300-hour level of activity as follows:

    Indirect materials (variable) ¥97,020
    Rent (fixed) 120,000
    Maintenance (mixed) 52,590
    Total factory overhead costs ¥269,610
    ________________________________________

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

    Requirement 1:
    Estimate how much of the ¥308,880 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 ¥308,880 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Omit the "¥" sign in your response.)

    Maintenance cost ¥

    Requirement 2:
    Using the high-low method, estimate a cost formula for maintenance where X represents the number of direct-labor hours. (Round variable cost per unit to 2 decimal places. Omit the "¥" sign in your response.)

    Y = ¥
    + ¥ X

    Requirement 3:
    What total factory overhead costs would you expect the company to incur at an operating level of 76,230 direct labor-hours? (Omit the "¥" sign in your response.)

    Indirect materials ¥

    Rent

    Maintenance:
    Variable cost element ¥

    Fixed cost element

    Total factory overhead cost ¥

    ________________________________________
    Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian consumers. The company's income statements for the three most recent months follow:

    Morrisey & Brown, Ltd.
    Income Statements
    For the Three Months Ended September 30
    July August September
    Sales in units 2,000 3,300 4,950
    Sales revenue A$ 356,000 A$ 587,400 A$ 881,100
    Cost of goods sold 142,000 234,300 351,450
    Gross margin 214,000 353,100 529,650
    Selling and administrative expenses:
    Advertising expense 69,500 69,500 69,500
    Shipping expense 42,400 56,700 74,850
    Salaries and commissions 114,200 166,200 232,200
    Insurance expense 8,500 8,500 8,500
    Depreciation expense 41,100 41,100 41,100
    Total selling and administrative expenses 275,700 342,000 426,150
    Net operating income (loss) A$ (61,700 ) A$ 11,100 A$ 103,500
    ________________________________________

    (Note: Morrisey & Brown, Ltd.'s Australian-formatted income statement has been recast in the format common in the United States. The Australian dollar is denoted here by A$.)
    Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed.

    Expenses Classification
    Cost of goods sold

    Advertising expense

    Shipping expense

    Salaries and commissions

    Insurance expense

    Depreciation expense

    ________________________________________
    (a) Using the high-low method, separate each mixed expense into variable and fixed elements. (Omit the "A$" sign in your response.)

    Variable cost A$
    per unit A$
    per unit
    Fixed cost A$
    A$

    ________________________________________

    (b) State the cost formula for each mixed expense. (X represents sales in units). (Omit the "A$" sign in your response.)

    Y = A$
    + A$
    X

    Y = A$
    + A$
    X
    ________________________________________
    Redo the company's income statement at the 4,950-unit level of activity using the contribution format.(Input all amounts as positive values except net operating loss which should be indicated by a minus sign. Omit the "A$" sign in your response.)

    Morrisey & Brown, Ltd.
    Income Statement
    For the Month Ended September 30

    A$

    Variable expenses:

    A$

    Contribution margin

    Fixed expenses:

    A$

    ________________________________________

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    https://brainmass.com/business/accounting/variable-cost-element-fixed-cost-element-total-overhead-375735

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