Babuca 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: (Round your intermediate calculations to 2 decimal places.)

Question

Babuca 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: (Round your intermediate calculations to 2 decimal places.)

Quizplus · Accepted Answer

To find the total monthly fixed manufacturing cost, we need to use the high-low method:

First, we need to find the variable cost per unit:

Variable cost per unit = (Total cost at high production level - Total cost at low production level) / (High production level - Low production level)
Variable cost per unit = ($6,874,600 - $5,996,900) / (52,000 - 44,000)
Variable cost per unit = $13.25

Next, we can use either the high or low production level to find the fixed cost:

At high production level: 
Total cost = Fixed cost + Variable cost per unit x Production level 
$6,874,600 = Fixed cost + ($13.25 x 52,000)
Fixed cost = $6,874,600 - ($13.25 x 52,000)
Fixed cost = $851,650

At low production level: 
Total cost = Fixed cost + Variable cost per unit x Production level 
$5,996,900 = Fixed cost + ($13.25 x 44,000)
Fixed cost = $5,996,900 - ($13.25 x 44,000)
Fixed cost = $851,650

Therefore, the best estimate of the total monthly fixed manufacturing cost is $851,650.

Babuca Corporation Has Provided the Following Production and Total Cost