Davis Corporation has provided the following production and total 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)$130, 000
B)$177, 600
C)$34, 800
D)$225, 200

Question

Davis Corporation has provided the following production and total 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)$130, 000 
B)$177, 600 
C)$34, 800 
D)$225, 200

Quizplus · Accepted Answer

Direct materials and direct labor are both strictly variable costs in this company.
Variable manufacturing overhead cost per unit = Change in cost ÷ Change in activity
= ($62, 200 - $48, 500)÷ (2, 000 units - 1, 000 units)
= $13, 700 ÷ 1, 000 units
= $13.70 per unit
Fixed cost element of manufacturing overhead = Total cost - Variable cost element
= $62, 200 - (2, 000 units × $13.70 per unit)
= $62, 200 - $27, 400
= $34, 800

Davis Corporation Has Provided the Following Production and Total Cost