Question

At the high and low levels of activity during the month, direct labor hours are 90,000 and 40,000, respectively. The related costs are $165,000 and $100,000. What are the fixed and variable costs at any level of activity? (Round variable cost per unit to 2 decimal places, e.g. 2.25.) Fixed Costs $ per month Variable Costs $ per unit

Answer 1

Fixed cost per month is $48,000

Variable cost per unit is $1.30

Step-by-step explanation:

Variable cost= cost at higher activity-cost at lower activity/(labor hours at higher activity-labor hours at lower activity)

cost at higher activity is $165,000

cost at lower activity is $100,000

labor hours at higher activity is 90,000 hours

labor hours at lower activity is 40,000

variable cost=($165,000-$100,000)/(90,000-40,000)=$1.30 per hour

Fixed cost=total cost-(variable cost*number of hours)

The fixed cost at higher activity is computed thus:

Fixed cost=$165,000-(90000*$1.3)

fixed cost=$165,000-$117,000=$48,000

Answer 2

Fixed Costs per month is $48,000, while Variable Costs per unit is $1.30.

Step-by-step explanation:

Variable cost per unit = ($165,000 - $100,000) ÷ (90,000 - 40,000) = $1.3 per unit

Total cost = Total Fixed Cost + Total Variable Cost ................. (1)

Total Variable Cost = Variable cost per unit × Units at any level of activity

Using high levels of activity and substitute into equation (1), we have:

$165,000 = Total Fixed Cost - ($1.3 × 90,000)

Total Fixed Cost = $165,000 - ($1.3 × 90,000) = $165,000 - $117,000 = $48,000

Therefore, Fixed Costs per month is $48,000, while Variable Costs per unit is $1.30.