Barredo Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows: If 4,000 units are sold, the total variable cost is closest to:
A) $67,000
B) $47,600
C) $51,400
D) $58,800

Question

Barredo Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows:  If 4,000 units are sold, the total variable cost is closest to:
A) $67,000 
B) $47,600 
C) $51,400 
D) $58,800

Quizplus · Accepted Answer

We can use the high-low method to calculate the total variable cost when 4,000 units are sold.

Total cost at 5,000 units:
Average cost per unit = (Total cost at 5,000 units) / (5,000 units)
11eb6b8f_6244_e701_bf83_6b7030fe7555_TB8314_01

Total variable cost at 5,000 units = 5,000 units x $8 = $40,000
Total cost at 5,000 units = Total variable cost at 5,000 units + Total fixed cost
$11 x 5,000 units = $55,000
Total fixed cost = $55,000 - $40,000 = $15,000

Total cost at 4,000 units:
Total cost at 4,000 units = Total variable cost at 4,000 units + Total fixed cost
Total variable cost at 4,000 units = Total cost at 4,000 units - Total fixed cost
($11 x 4,000 units) - $15,000 = $44,000 - $15,000 = $29,000

Therefore, the total variable cost when 4,000 units are sold is closest to $51,400 (which is not an answer choice), but the closest answer choice is C) $51,400.

Barredo Corporation's Relevant Range of Activity Is 3,000 Units to 7,000