Faulks Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. When the company prepared its planning budget at the beginning of August, it assumed that 23 containers would have been refurbished. However, 26 containers were actually refurbished during August.The amount shown for total expenses in the planning budget for August would have been closest to:
A) $111,904
B) $126,500
C) $122,400
D) $128,100

Question

Faulks Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes.  When the company prepared its planning budget at the beginning of August, it assumed that 23 containers would have been refurbished. However, 26 containers were actually refurbished during August.The amount shown for total expenses in the planning budget for August would have been closest to:
A) $111,904 
B) $126,500 
C) $122,400 
D) $128,100

Quizplus · Accepted Answer

Using the high-low method, we can calculate the variable cost per container:
Variable cost per container = (Cost at highest activity level - Cost at lowest activity level) / (Highest activity level - Lowest activity level)
Variable cost per container = ($132,200 - $118,900) / (27 - 22)
Variable cost per container = $2,640
Using this information, we can calculate the total cost for refurbishing 26 containers:
Total variable cost = $2,640 x 26 = $68,640
Total fixed cost = $122,400
Total cost = Total fixed cost + Total variable cost = $122,400 + $68,640 = $191,040
Therefore, the amount shown for total expenses in the planning budget for August would have been closest to $122,400.

Faulks Corporation Is a Shipping Container Refurbishment Company That Measures