Based on a predicted level of production and sales of 12,000 units, a company anticipates reporting operating income of $26,000 after deducting variable costs of $72,000 and fixed costs of $10,000. Based on this information, the budgeted amounts of fixed and variable costs for 15,000 units would be:
A) $12,500 of fixed costs and $90,000 of variable costs.
B) $10,000 of fixed costs and $72,000 of variable costs.
C) $10,000 of fixed costs and $81,000 of variable costs.
D) $10,000 of fixed costs and $90,000 of variable costs.
E) $12,500 of fixed costs and $72,000 of variable costs.

Question

Quizplus · Accepted Answer

To find the budgeted amounts of fixed and variable costs for 15,000 units, we need to use the high-low method to calculate the variable cost per unit.

Variable cost per unit = (Total variable costs at high activity level - Total variable costs at low activity level) / (High activity level - Low activity level)

Using the given data: 
Low activity level: 12,000 units 
High activity level: 15,000 units

Variable cost per unit = ($72,000 - $26,000) / (12,000 - 15,000) = $18

Now that we have the variable cost per unit, we can use it to calculate the total variable costs and add it to the fixed costs to get the total costs at the 15,000 unit level.

Total variable costs = Variable cost per unit x Number of units 
Total variable costs = $18 x 15,000 = $270,000

Total costs = Total fixed costs + Total variable costs 
Total costs = $10,000 + $270,000 = $280,000

Therefore, the budgeted amounts of fixed and variable costs for 15,000 units would be $10,000 of fixed costs and $270,000 of variable costs, or answer choice D.

Based on a Predicted Level of Production and Sales of 12,000