Baker 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)$1, 027, 200
B)$1, 060, 300
C)$1, 093, 400
D)$630, 000

Question

Baker 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)$1, 027, 200 
B)$1, 060, 300 
C)$1, 093, 400 
D)$630, 000

Quizplus · Accepted Answer

Direct materials is a variable cost.
Direct labor is usually a variable cost, but it doesn't hurt to check.
Variable cost per unit = Change in cost ÷ Change in activity
= ($86, 800 - $74, 400)÷ (7, 000 units - 6, 000 units)
= $12, 400 ÷ 1, 000 units
= $12.40 per unit
Fixed cost = Total cost - Variable cost element
= $86, 800 - ($12.40 per unit × 7, 000 units)
= $86, 800 - 86, 800
= $0
Manufacturing overhead:
Variable cost per unit = Change in cost ÷ Change in activity
= ($779, 800 - $758, 400)÷ (7, 000 units - 6, 000 units)
= $21, 400 ÷ 1, 000 units
= $21.40 per unit
Fixed cost = Total cost - Variable cost element
= $779, 800 - ($21.40 per unit × 7, 000 units)
= $779, 800 - $149, 800
= $630, 000
Total fixed cost per month = $0 + $630, 000 = $630, 000

Baker Corporation Has Provided the Following Production and Total Cost