At a sales volume of 40,000 units, Lonnie Company's total fixed costs are $40,000 and total variable costs are $60,000. The relevant range is 30,000 to 50,000 units.If Lonnie were to sell 42,000 units, the total expected cost would be:
A) $105,000
B) $100,000
C) $103,000
D) $102,000

Question

Quizplus · Accepted Answer

Using the high-low method, we can calculate the variable cost per unit:
Variable cost per unit = (Total cost at high activity level - Total cost at low activity level) / (High activity level - Low activity level)
Variable cost per unit = ($60,000 - $20,000) / (40,000 - 30,000) = $4

Using the same method, we can calculate the total fixed costs:
Total fixed costs = Total cost at high activity level - (Variable cost per unit x High activity level)
Total fixed costs = $60,000 - ($4 x 40,000) = $-20,000
(Note: Negative fixed costs are not realistic, but this indicates that there may be some errors or inconsistencies with the data.)

To calculate the total expected cost at 42,000 units:
Total expected cost = Total fixed costs + (Variable cost per unit x Number of units)
Total expected cost = $40,000 + ($4 x 42,000) = $208,000

However, since the total fixed costs calculated earlier do not make sense, we can use the given information that the total fixed costs are $40,000 at 40,000 units. Therefore, the total expected cost at 42,000 units would be:
Total expected cost = Total fixed costs + (Variable cost per unit x Number of units)
Total expected cost = $40,000 + ($4 x 2,000) = $48,000
Adding the fixed and variable costs together, we get:
Total expected cost = $40,000 + $48,000 = $88,000

Therefore, the best choice is C) $103,000, which is not an option. However, the closest option is $88,000, which is the total expected cost at 42,000 units.

At a Sales Volume of 40,000 Units, Lonnie Company's Total