Question

Anthony Chemicals, Inc. has fixed costs of $34,000 per month. The highest production volume during the year was in January when 120,000 units were produced, 72,000 units were sold, and total costs of $610,000 were incurred. In June, the company produced only 54,000 units. What was the total cost incurred in June? (Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar.)

A) $259,200
B) $293,200
C) $610,000
D) $644,000

Answer 1

The correct answer is option b. By subtracting fixed costs from the total cost in January to find variable costs, calculating variable cost per unit, and then adding fixed costs to the variable costs for June's production, we determine that the total cost incurred in June was $293,200.

Step-by-step explanation:

To solve this, we need to break down the total costs into fixed and variable costs. We know from the problem that fixed costs are $34,000 per month. Total costs in January were $610,000 when 120,000 units were produced, which includes both fixed and variable costs.

First, subtract the fixed costs from the total costs for January to find the variable costs:

• Total costs (January) = $610,000
• Fixed costs = $34,000
• Variable costs (January) = Total costs - Fixed costs = $610,000 - $34,000 = $576,000

Next, calculate the variable cost per unit for January:

• Variable cost per unit (January) = Variable costs (January) / Units produced (January) = $576,000 / 120,000 units = $4.80 per unit

Now, we can estimate the total cost for June by adding the fixed costs to the variable costs incurred for producing 54,000 units:

• Variable costs (June) = Variable cost per unit (January) x Units produced (June) = $4.80 per unit x 54,000 units = $259,200
• Total costs (June) = Fixed costs + Variable costs (June) = $34,000 + $259,200 = $293,200

Therefore, the correct answer is B) $293,200, which represents the total cost incurred in June.