Babuca 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)$1,424,400
B)$1,506,400
C)$932,400
D)$1,465,400

Question

Babuca 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)$1,424,400 
B)$1,506,400 
C)$932,400 
D)$1,465,400

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 F1F1F1S1F1F1F10 Change in activity
= ($94,500 - $81,000)F1F1F1S1F1F1F10 (7,000 units - 6,000 units)
= $13,500 F1F1F1S1F1F1F10 1,000 units = $13.50 per unit
Fixed cost = Total cost - Variable cost element
= $94,500 - ($13.50 per unit F1F1F1S1F1F1F10 7,000 units)
= $94,500 - 94,500
= $0
Manufacturing overhead:
Variable cost per unit = Change in cost F1F1F1S1F1F1F10 Change in activity
= ($1,015,000- $1,003,200)F1F1F1S1F1F1F10 (7,000 units - 6,000 units)
= $11,800 F1F1F1S1F1F1F10 1,000 units
= $11.80 per unit
Fixed cost = Total cost - Variable cost element
= $1,015,000 - ($11.80 per unit F1F1F1S1F1F1F10 7,000 units)
= $1,015,000 - $82,600
= $932,400
Total fixed cost per month = $0 + $932,400 = $932,400

Babuca Corporation Has Provided the Following Production and Total Cost