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