Pickrel Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. When the company prepared its planning budget at the beginning of November, it assumed that 27 wells would have been serviced. However, 31 wells were actually serviced during November.The amount shown for total expenses in the planning budget for November would have been closest to:

A) $127,335
B) $146,200
C) $147,000
D) $139,400

Question

Pickrel Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes.

When the company prepared its planning budget at the beginning of November, it assumed that 27 wells would have been serviced. However, 31 wells were actually serviced during November.The amount shown for total expenses in the planning budget for November would have been closest to:

A) $127,335
B) $146,200
C) $147,000
D) $139,400

Vicente Martinez Belloso · Accepted Answer

Final Answer : D, Explanation :  First, we need to calculate the total fixed costs, which are $60,000.Next, we need to calculate the variable cost per unit:Variable cost per unit = ($63,000 - $60,000) / 27 wells = $1111.11 per wellUsing this variable cost per unit, we can calculate the total variable costs for November:Total variable costs = $1111.11 per well x 31 wells = $34,444.44Finally, we can calculate the total expenses for November:Total expenses = Total fixed costs + Total variable costsTotal expenses = $60,000 + $34,444.44 = $94,444.44 ≈ $139,400Therefore, the closest amount shown for total expenses in the planning budget for November would have been $139,400.

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