The following table provides information about a company's production.If variable costs increased in 2005 by 10 per cent and fixed overheads increased in 2006 by 20 per cent,what was the estimated total cost in 2006?

A) $447 600
B) $472 800
C) $504 200
D) More than $514 400

Question

The following table provides information about a company's production.If variable costs increased in 2005 by 10 per cent and fixed overheads increased in 2006 by 20 per cent,what was the estimated total cost in 2006?

A) $447 600 
B) $472 800 
C) $504 200 
D) More than $514 400

Quizplus · Accepted Answer

To calculate the estimated total cost in 2006, we need to first calculate the total cost in 2005 and then apply the percentage increase in variable costs and fixed overheads.

Total cost in 2005 = Direct materials + Direct labor + Variable overheads + Fixed overheads 
= $200,000 + $120,000 + $100,000 + $60,000 
= $480,000

After a 10% increase in variable costs: 
Variable overheads for 2006 = $110,000

After a 20% increase in fixed overheads: 
Fixed overheads for 2006 = $72,000

Total cost in 2006 = Direct materials + Direct labor + Variable overheads for 2006 + Fixed overheads for 2006 
= $220,000 + $132,000 + $110,000 + $72,000 
= $534,000

The closest answer is option C, which is $504,200.

The Following Table Provides Information About a Company's Production