Bowman, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that when 200,000 units were produced, fixed manufacturing costs amounted to $800,000 and the cost per unit manufactured totaled $11. On the basis of this information, how much cost would the firm anticipate at an activity level of 205,000 units?
A) $2,235,000.
B) $2,222,000.
C) $2,214,000.
D) $2,200,000.
E) None of the other answers is correct.

Question

Quizplus · Accepted Answer

The variable cost per unit is $11 - $4 = $7. At an activity level of 205,000 units, the variable cost would be $7 * 205,000 = $1,435,000. The fixed cost is $800,000. Therefore, the total cost would be $1,435,000 + $800,000 = $2,235,000.