Anderwald Corporation has provided the following production and average 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:
A)$360,800
B)$136,800
C)$196,800
D)$176,800

Question

Anderwald Corporation has provided the following production and average 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:
A)$360,800 
B)$136,800 
C)$196,800 
D)$176,800

Quizplus · Accepted Answer

Both direct materials and direct labor are variable costs.
Total manufacturing overhead at 2,000 units = $88.40 per unit F1F1F1S1F1F1F10 2,000 units = $176,800
Total manufacturing overhead at 3,000 units = $65.60 per unit F1F1F1S1F1F1F10 3,000 units = $196,800
Variable element of manufacturing overhead = Change in cost F1F1F1S1F1F1F10 Change in activity
= ($196,800 - $176,800)F1F1F1S1F1F1F10 (3,000 units - 2,000 units)
= $20,000 F1F1F1S1F1F1F10 1,000 units
= $20 per unit
Fixed cost element of manufacturing overhead = Total cost - Total variable cost
= $196,800 - ($20.00 per unit F1F1F1S1F1F1F10 3,000 units)
= $196,800 - ($60,000)
= $136,800

Anderwald Corporation Has Provided the Following Production and Average Cost