Perteet 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 produced, the total amount of manufacturing overhead cost is closest to:
A)$18,100
B)$28,000
C)$21,400
D)$14,800

Question

Perteet 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 produced, the total amount of manufacturing overhead cost is closest to:
A)$18,100 
B)$28,000 
C)$21,400 
D)$14,800

Quizplus · Accepted Answer

We can estimate the manufacturing overhead cost by using the high-low method. Let's take the highest and lowest levels of activity within the relevant range:

When production and sales volume is 7,000 units:
Total cost = Total variable cost + Total fixed cost
Assuming variable cost per unit is the same as at 5,000 units: 
Total variable cost = 7,000 units × $7 per unit = $49,000
Total cost - $49,000 - fixed cost

When production and sales volume is 3,000 units:
Total cost = Total variable cost + Total fixed cost
Assuming variable cost per unit is the same as at 5,000 units: 
Total variable cost = 3,000 units × $7 per unit = $21,000
Total cost - $21,000 - fixed cost

Using this information, we can calculate the variable cost per unit:
Variable cost per unit = (Total cost at high activity level - Total cost at low activity level) / (High activity level - Low activity level)
Variable cost per unit = ($49,000 - $21,000) / (7,000 units - 3,000 units) = $7 per unit

Now, we can use the estimated variable cost per unit to calculate the total amount of manufacturing overhead cost at 4,000 units:
Variable cost at 4,000 units = 4,000 units x $7 per unit = $28,000
Total cost at 4,000 units = Total variable cost + Total fixed cost
$28,000 = $4,000 x $7 per unit + Total fixed cost
Total fixed cost = $28,000 - $28,000 = $0

Therefore, the total amount of manufacturing overhead cost at 4,000 units is closest to $21,400, which is option C. 11efc28b_dfec_df47_80e6_a9af645fc347_TB2627_00  *The average fixed manufacturing overhead cost per unit was determined by dividing the total fixed manufacturing overhead cost by 5,000 units.

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