Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total monthly fixed manufacturing cost is: (Round your intermediate calculations to 2 decimal places.)
A) $1,098,000
B) $1,053,000
C) $1,143,000
D) $603,000

Question

Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.  The best estimate of the total monthly fixed manufacturing cost is: (Round your intermediate calculations to 2 decimal places.)
A) $1,098,000 
B) $1,053,000 
C) $1,143,000 
D) $603,000

Quizplus · Accepted Answer

Direct materials is a variable cost.
Direct labor is usually a variable cost, but it doesn't hurt to check.
Variable cost per unit = Change in cost ÷ Change in activity
= ($339,000 - $282,500) ÷ (6,000 units - 5,000 units)
= $56,500 ÷ 1,000 units
= $56.50 per unit
Fixed cost = Total cost - Variable cost element
= $339,000 - ($56.50 per unit × 6,000 units)
= $339,000 - 339,000
= $0
Manufacturing overhead:
Variable cost per unit = Change in cost ÷ Change in activity
= ($679,800 − $667,000) ÷ (6,000 units - 5,000 units)
= $12,800 ÷ 1,000 units
= $12.80 per unit
Fixed cost = Total cost - Variable cost element
= $679,800 - ($12.80 per unit × 6,000 units)
= $679,800 - $76,800
= $603,000
Total fixed cost per month = $0 + $603,000 = $603,000

Babuca Corporation Has Provided the Following Production and Total Cost