Hadrana Corporation reports that at an activity level of 5,500 units, its total variable cost is $275,330 and its total fixed cost is $86,240. What would be the average fixed cost per unit at an activity level of 5,600 units? Assume that this level of activity is within the relevant range.
A)$32.27
B)$15.68
C)$65.74
D)$15.40

Question

Quizplus · Accepted Answer

First, we need to calculate the total cost at an activity level of 5,600 units:

Total cost = Total fixed cost + Total variable cost
Total cost = $86,240 + ($275,330/5,500) x 5,600
Total cost = $86,240 + $275,330
Total cost = $361,570

Next, we need to calculate the average fixed cost per unit:

Average fixed cost per unit = Total fixed cost / Activity level
Average fixed cost per unit = $86,240 / 5,600
Average fixed cost per unit = $15.40

Therefore, the best answer is D, $15.40.

Hadrana Corporation Reports That at an Activity Level of 5,500