The total traceable costs of the account billing activity centre is $245,000. Cost behaviour analysis indicates that fixed costs are $75,000. Activity analysis indicates that the cost driver for account billing activity is the number of lines printed, and the total lines printed is 2,500,000.
-What is the cost function?
A) Costs = $ 75,000 + $0.098(Lines)
B) Costs = $ 75,000 + $0.068(Lines)
C) Costs = $245,000 + $0.068(Lines)
D) Cannot be determined

Question

Quizplus · Accepted Answer

The cost function can be calculated by dividing the total traceable costs (excluding fixed costs) by the cost driver, which is the number of lines printed.

Variable cost per unit = (Total traceable costs - Fixed costs) / Cost driver 
Variable cost per unit = ($245,000 - $75,000) / 2,500,000 
Variable cost per unit = $0.068

Therefore, the cost function is: 
Costs = $75,000 + $0.068(Lines)

Option B is the correct choice.

The Total Traceable Costs of the Account Billing Activity Centre