Reference: 06-05
Maxwell Company has a total expense per unit of $2.00 at the 16,000 unit level of activity and total expense per unit of $1.95 at the 21,000 unit level of activity.
-The best estimate of the total expected costs at the 19,000 unit level of activity for Maxwell Company is?
A)$38,000.
B)$37,370.
C)$37,050.
D)$39,830.

Question

Quizplus · Accepted Answer

The total expenses at both levels of activity suggest the presence of both variable and fixed costs. To find the total expected costs at 19,000 units, we first determine the variable cost per unit and the total fixed costs. At 16,000 units, total costs = $2.00 * 16,000 = $32,000.At 21,000 units, total costs = $1.95 * 21,000 = $40,950.The difference in cost between these two levels of activity is due to the variable cost component, as fixed costs remain constant. The difference in units is 5,000 (21,000 - 16,000), and the difference in total cost is $8,950 ($40,950 - $32,000).Variable cost per unit = $8,950 / 5,000 = $1.79.To find the fixed costs, we subtract the total variable costs at either level from the total costs at that level. Using the 16,000 unit level for simplicity:Total variable costs at 16,000 units = 16,000 * $1.79 = $28,640.Fixed costs = Total costs at 16,000 units - Total variable costs at 16,000 units = $32,000 - $28,640 = $3,360.Now, to find the total expected costs at 19,000 units:Total variable costs at 19,000 units = 19,000 * $1.79 = $34,010.Total expected costs at 19,000 units = Total variable costs + Fixed costs = $34,010 + $3,360 = $37,370.

Reference: 06-05 Maxwell Company Has a Total Expense Per Unit of $2.00