The following information is available for electricity costs for the last six months of the year: $\begin{array}{ccc}\text { Month } &\text { Production Volume } & \text { Electricity Costs }\
\hline \text { January } & 1,400 & \$ 2,200 \
\text { February } & 2,800 & 5,400 \
\text { March } & 3,200 & 5,700 \
\text { April } & 1,750 & 3,900 \
\text { May } & 1,200 & 2,400 \
\text { June } & 2,100 & 4,050
\end{array}$
What are the fixed costs?
A)$420
B)$100
C)$200
D)none of these

Question

Quizplus · Accepted Answer

Fixed costs are the costs that do not change with the level of production. In this case, the fixed costs are the electricity costs that are incurred even when no production is taking place. To calculate the fixed costs, we can subtract the variable costs from the total costs. The variable costs are the costs that change with the level of production. In this case, the variable costs are the electricity costs that are incurred as a result of production. To calculate the variable costs, we can divide the total electricity costs by the total production volume. The fixed costs are then equal to the total electricity costs minus the variable costs. In this case, the fixed costs are equal to $2,200 - $1,783 = $420.

The Following Information Is Available for Electricity Costs for the Last