Witten Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. A total of 27 customers were actually served during January.The total expenses in the flexible budget for January would have been closest to:
A) $113,748
B) $133,400
C) $141,400
D) $139,600

Question

Witten Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes.  A total of 27 customers were actually served during January.The total expenses in the flexible budget for January would have been closest to:
A) $113,748 
B) $133,400 
C) $141,400 
D) $139,600

Quizplus · Accepted Answer

Using the high-low method, we can determine the variable cost per customer:

Variable cost per customer = Change in cost / Change in activity

= ($157,500 - $100,500) / (36,000 - 18,000)

= $57,000 / 18,000

= $3.17 per customer

Using the total cost equation:

Total cost = Fixed cost + (Variable cost per customer × Number of customers served)

= $47,250 + ($3.17 × 27)

= $141,400

Therefore, the total expenses in the flexible budget for January would have been closest to option C ($141,400).

Witten Corporation Is a Service Company That Measures Its Output