Joe,Jeff and Jerry Frank own Frank Brothers Farm,a seed company specializing in seed corn.At their weekly meeting they tried to calculate the portion of the farm's overhead expenses that is fixed and the portion that is variable.Over the past twelve months,the number of bushels of seed corn that has been sold reached its peak in May,when the total monthly overhead costs totaled $250,000 for 95,000 bushels of seed corn sold.The lowest number of bushels sold in the last twelve months occurred in December,when total overhead costs were $75,000 for 7,500 bushels sold.What is the fixed portion of the monthly overhead expenses?
A)$60,000
B)$242,500
C)$190,000
D)$75,000

Question

Quizplus · Accepted Answer

A)
Highest cost $250,000 Highest activity 95,000
Lowest cost $75,000 Lowest activity 7,500
Difference $175,000 87,500
NOW divide the difference in the cost by the difference in the activity equals Variable cost per unit.$175,000/ 87,500 = $2.00
Put the numbers into the Cost Equation: $250,000 = $2.00 (95,000)+ f
$60,000 = f

Joe,Jeff and Jerry Frank Own Frank Brothers Farm,a Seed Company