A company usually processes 20,000 orders at a total cost of $250,000. During the year, only 10,000 orders were processed. What is the cost of unused activity?
A)$200,000
B)$240,000
C)$150,000
D)$125,000

Question

Quizplus · Accepted Answer

The cost of unused activity can be calculated by first determining the cost per order when the company operates at its usual level, which is $250,000 / 20,000 orders = $12.50 per order. When the company processes only 10,000 orders, the expected cost at the usual rate would be 10,000 orders * $12.50 = $125,000. Since the company was prepared to spend $250,000 but only needed $125,000 for the 10,000 orders, the cost of unused activity is $250,000 - $125,000 = $125,000.

A Company Usually Processes 20,000 Orders at a Total Cost