Adens Corporation's relevant range of activity is 2,000 units to 6,000 units. When it produces and sells 4,000 units, its average costs per unit are as follows: If 5,000 units are sold, the total variable cost is closest to:
A) $53,000
B) $65,000
C) $60,500
D) $77,000

Question

Adens Corporation's relevant range of activity is 2,000 units to 6,000 units. When it produces and sells 4,000 units, its average costs per unit are as follows:  If 5,000 units are sold, the total variable cost is closest to:
A) $53,000 
B) $65,000 
C) $60,500 
D) $77,000

Quizplus · Accepted Answer

The given information shows that Adens Corporation's cost behavior is semi-variable. To find the variable cost per unit, we can use the high-low method as follows:

Total Cost at 4,000 units = Fixed Cost + Variable Cost * 4,000
11,200 = Fixed Cost + Variable Cost * 4,000

Total Cost at 5,000 units = Fixed Cost + Variable Cost * 5,000
15,700 = Fixed Cost + Variable Cost * 5,000

Subtracting the two equations:
4,500 = Variable Cost * 1,000
Variable Cost per unit = $4.50

To find the total variable cost at 5,000 units, we can use the formula:
Total Variable Cost = Variable Cost per unit * Number of units
Total Variable Cost at 5,000 units = $4.50 * 5,000 = $22,500

Therefore, the closest option to the total variable cost at 5,000 units is option C: $60,500 (total cost at 5,000 units = $80,700 - $20,200 fixed cost)

Adens Corporation's Relevant Range of Activity Is 2,000 Units to 6,000