At a sales volume of 30,000 units, Carne Company's total fixed costs are $30,000 and total variable costs are $45,000. The relevant range is 20,000 to 40,000 units. If Carne Company were to sell 32,000 units, the total expected cost would be:
A)$75,000
B)$78,000
C)$80,000
D)$77,000

Question

Quizplus · Accepted Answer

We can use the high-low method to determine the fixed and variable components of Carne Company's costs.

Variable cost per unit = (Total cost at high point - Total cost at low point) / (High volume - Low volume)
Variable cost per unit = ($45,000 - $15,000) / (30,000 units - 20,000 units) = $3 per unit

Total fixed cost = Total cost at high point - (Variable cost per unit x High volume)
Total fixed cost = $45,000 - ($3 per unit x 30,000 units) = $30,000

Using the above information, we can create the following cost equation:
Total cost = Total fixed cost + Variable cost per unit x Volume

Plugging in the numbers for the expected sales volume of 32,000 units:
Total cost = $30,000 + ($3 x 32,000) = $78,000

Therefore, the total expected cost for selling 32,000 units is $78,000. The best choice is B.

At a Sales Volume of 30,000 Units, Carne Company's Total