Baker Corporation has provided the following production and total cost data for two levels of monthly production volume.The company produces a single product. The best estimate of the total monthly fixed manufacturing cost is:
A)$1,027,200
B)$1,060,300
C)$1,093,400
D)$630,000

Question

Baker Corporation has provided the following production and total cost data for two levels of monthly production volume.The company produces a single product.  The best estimate of the total monthly fixed manufacturing cost is:
A)$1,027,200 
B)$1,060,300 
C)$1,093,400 
D)$630,000

Quizplus · Accepted Answer

Direct materials is a variable cost.
Direct labor is usually a variable cost,but it doesn't hurt to check.
Variable cost per unit = Change in cost ÷ Change in activity
= ($86,800 - $74,400)÷ (7,000 units - 6,000 units)
= $12,400 ÷ 1,000 units
= $12.40 per unit
Fixed cost = Total cost - Variable cost element
= $86,800 - ($12.40 per unit × 7,000 units)
= $86,800 - 86,800
= $0
Manufacturing overhead:
Variable cost per unit = Change in cost ÷ Change in activity
= ($779,800 - $758,400)÷ (7,000 units - 6,000 units)
= $21,400 ÷ 1,000 units
= $21.40 per unit
Fixed cost = Total cost - Variable cost element
= $779,800 - ($21.40 per unit × 7,000 units)
= $779,800 - $149,800
= $630,000
Total fixed cost per month = $0 + $630,000 = $630,000

Baker Corporation Has Provided the Following Production and Total Cost