Anderson 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)$388, 000
B)$954, 800
C)$376, 000
D)$328, 000

Question

Anderson 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)$388, 000 
B)$954, 800 
C)$376, 000 
D)$328, 000

Quizplus · Accepted Answer

Both direct materials and direct labor are variable costs.
Total manufacturing overhead at 4, 000 units = $94.00 per unit × 4, 000 units = $376, 000
Total manufacturing overhead at 5, 000 units = $77.60 per unit × 5, 000 units = $388, 000
Variable element of manufacturing overhead = Change in cost ÷ Change in activity
= ($388, 000 - $376, 000)÷ (5, 000 units - 4, 000 units)
= $12, 000 ÷ 1, 000 units
= $12 per unit
Fixed cost element of manufacturing overhead = Total cost - Total variable cost
= $388, 000 - ($12.00 per unit × 5, 000 units)
= $388, 000 - ($60, 000)
= $328, 000

Anderson Corporation Has Provided the Following Production and Average Cost