Andom Corporation has provided the following production and average 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:
A) $74,800
B) $54,100
C) $99,800
D) $33,400

Question

Andom Corporation has provided the following production and average 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:
A) $74,800 
B) $54,100 
C) $99,800 
D) $33,400

Quizplus · Accepted Answer

Both direct materials and direct labor are variable costs.
Total manufacturing overhead at 1,000 units = $54.10 per unit × 1,000 units = $54,100
Total manufacturing overhead at 2,000 units = $37.40 per unit × 2,000 units = $74,800
Variable element of manufacturing overhead = Change in cost ÷ Change in activity
= ($74,800 - $54,100) ÷ (2,000 units - 1,000 units)
= $20,700 ÷ 1,000 units
= $20.70 per unit
Fixed cost element of manufacturing overhead = Total cost - Total variable cost
= $74,800 - ($20.70 per unit × 2,000 units)
= $74,800 - $41,400
= $33,400

Andom Corporation Has Provided the Following Production and Average Cost