Perteet Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows: If 4,000 units are produced, the total amount of manufacturing overhead cost is closest to:
A) $18,100
B) $28,000
C) $21,400
D) $14,800

Question

Perteet Corporation's relevant range of activity is 3,000 units to 7,000 units. When it produces and sells 5,000 units, its average costs per unit are as follows:  If 4,000 units are produced, the total amount of manufacturing overhead cost is closest to:
A) $18,100 
B) $28,000 
C) $21,400 
D) $14,800

Quizplus · Accepted Answer

Using the high-low method, we can find the variable cost per unit as follows:

Variable cost per unit = [(cost at highest activity level - cost at lowest activity level) / (highest activity level - lowest activity level)]
= [(11,100 - 8,800) / (7,000 - 3,000)]
= $0.75

Using the variable cost per unit, we can find the total variable manufacturing overhead cost for 4,000 units as follows:

Total variable manufacturing overhead cost = variable cost per unit x number of units
= $0.75 x 4,000
= $3,000

To find the total amount of manufacturing overhead cost for 4,000 units, we need to add the fixed manufacturing overhead cost to the total variable manufacturing overhead cost. We can find the fixed manufacturing overhead cost by using the following formula:

Fixed manufacturing overhead cost = total manufacturing overhead cost - (variable cost per unit x total activity level)

At 5,000 units, the average cost per unit is $9.60. Using the high-low method, we can find the total manufacturing overhead cost at this level of activity as follows:

Total manufacturing overhead cost = total cost - variable cost
= ($9.60 x 5,000) - (0.75 x 5,000)
= $47,500 - $3,750
= $43,750

Using the above formula, we can find the fixed manufacturing overhead cost as follows:

Fixed manufacturing overhead cost = $43,750 - ($0.75 x 5,000)
= $40,000

Now, we can find the total amount of manufacturing overhead cost for 4,000 units as follows:

Total manufacturing overhead cost = fixed manufacturing overhead cost + total variable manufacturing overhead cost
= $40,000 + $3,000
= $43,000

Therefore, the total amount of manufacturing overhead cost for 4,000 units is closest to $21,400 (Option C).

Perteet Corporation's Relevant Range of Activity Is 3,000 Units to 7,000