At a volume of 5,000 units, Pwerson Company incurred $32,000 in factory overhead costs, including $14,000 in fixed costs.If volume increases to 6,000 units and both 5,000 units and 6,000 units are within the relevant range, then the company would expect to incur total factory overhead costs of:

A) $35,600
B) $21,600
C) $32,000
D) $18,000

Question

Chloe Bradley · Accepted Answer

Final Answer : A, Explanation :  First, we need to separate the fixed costs from the variable costs. To do this, we can use the high-low method:Variable cost per unit = (total cost at high volume - total cost at low volume) / (high volume - low volume)Variable cost per unit = ($32,000 - $14,000) / (5,000 - 0)Variable cost per unit = $18,000 / 5,000Variable cost per unit = $3.60Now that we know the variable cost per unit, we can use it to predict the total factory overhead costs at 6,000 units:Total factory overhead costs = fixed costs + (variable cost per unit * number of units)Total factory overhead costs = $14,000 + ($3.60 * 6,000)Total factory overhead costs = $14,000 + $21,600Total factory overhead costs = $35,600Therefore, the best choice is A, $35,600. Total cost = Total fixed cost + Total variable cost$32,000 = $14,000 + Total variable costTotal variable cost = $32,000 - $14,000 = $18,000Variable cost per unit = $18,000 ÷ 5,000 units = $3.60 per unitTotal cost = Total fixed cost + Total variable cost= $14,000 + ($3.60 per unit × 6,000 units)= $14,000 + $21,600= $35,600

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