Babuca Corporation has provided the following production and total 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: (Round your intermediate calculations to 2 decimal places.)

A) $859,150
B) $854,650
C) $851,650
D) $848,650

Question

Babuca Corporation has provided the following production and total 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: (Round your intermediate calculations to 2 decimal places.)

A) $859,150
B) $854,650
C) $851,650
D) $848,650

Thomas Fewtrell · Accepted Answer

Final Answer : C, Explanation :  To find the total monthly fixed manufacturing cost, we need to use the high-low method:First, we need to find the variable cost per unit:Variable cost per unit = (Total cost at high production level - Total cost at low production level) / (High production level - Low production level)Variable cost per unit = ($6,874,600 - $5,996,900) / (52,000 - 44,000)Variable cost per unit = $13.25Next, we can use either the high or low production level to find the fixed cost:At high production level:Total cost = Fixed cost + Variable cost per unit x Production level$6,874,600 = Fixed cost + ($13.25 x 52,000)Fixed cost = $6,874,600 - ($13.25 x 52,000)Fixed cost = $851,650At low production level:Total cost = Fixed cost + Variable cost per unit x Production level$5,996,900 = Fixed cost + ($13.25 x 44,000)Fixed cost = $5,996,900 - ($13.25 x 44,000)Fixed cost = $851,650Therefore, the best estimate of the total monthly fixed manufacturing cost is $851,650.

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