Bacho Corporation reports that at an activity level of 5,400 units, its total variable cost is $416,934 and its total fixed cost is $142,560.
-What would be the average fixed cost per unit at an activity level of 5,500 units? Assume that this level of activity is within the relevant range.
A) $26.40
B) $103.61
C) $25.92
D) $51.98

Question

Quizplus · Accepted Answer

First, calculate the total cost at an activity level of 5,400 units using the given information:

Total Cost = Total Fixed Cost + Total Variable Cost
Total Cost = $142,560 + $416,934
Total Cost = $559,494

Next, calculate the total fixed cost at an activity level of 5,500 units using the total cost at 5,400 units and the given fixed cost:

Total Cost = Total Fixed Cost + Total Variable Cost
$559,494 = Total Fixed Cost + (5,400 units x Variable Cost per unit)
$559,494 = Total Fixed Cost + (5,400 x (416,934/5,400))
$559,494 = Total Fixed Cost + $416,934
Total Fixed Cost = $142,560

Finally, calculate the average fixed cost per unit at 5,500 units:

Average Fixed Cost per unit = Total Fixed Cost / Activity Level
Average Fixed Cost per unit = $142,560 / 5,500 units
Average Fixed Cost per unit = $25.92

Therefore, the best choice is C: $25.92.

Bacho Corporation Reports That at an Activity Level of 5,400