At a volume of 8,000 units, Pwerson Company incurred $32,000 in factory overhead costs, including $12,000 in fixed costs. If volume increases to 9,000 units and both 8,000 units and 9,000 units are within the relevant range, then the company would expect to incur total factory overhead costs of:
A)$22,500
B)$32,000
C)$34,500
D)$20,000

Question

Quizplus · Accepted Answer

The variable factory overhead cost per unit can be calculated by subtracting fixed costs from total costs and dividing by the number of units:

Variable overhead cost per unit = (Total factory overhead - Fixed costs) / Units

Variable overhead cost per unit = ($32,000 - $12,000) / 8,000 = $2 per unit

Using the variable overhead cost per unit, we can then calculate the total factory overhead costs at 9,000 units:

Total factory overhead costs = Fixed costs + (Variable overhead cost per unit x Units)

Total factory overhead costs = $12,000 + ($2 x 9,000) = $30,000

Therefore, the expected total factory overhead costs at 9,000 units is $34,500 (fixed costs of $12,000 plus variable costs of $22,500). Thus, option C is correct.

At a Volume of 8,000 Units, Pwerson Company Incurred $32,000