Question

The highest value of total cost was $ 710 comma 000 in June for Horchata​ Beverages, Inc. Its lowest value of total cost was $ 550 comma 000 in December. The company makes a single product. The production volume in June and December were 13 comma 000 and 5 comma 000 ​units, respectively. What is the fixed cost per​ month? (Round any intermediate calculations to the nearest​ cent, and your final answer to the nearest​ dollar.) A. $ 450 comma 000 B. $ 5 comma 000 C. $ 160 comma 000 D. $ 550 comma 000

Answer 1

A. $ 450 comma 000

Step-by-step explanation:

In order to compute the fixed cost per month first we have to determine the variable cost per unit which is shown below.

Variable cost per hour = (High total cost - low total cost) ÷ (High production volume - low production volume)

= ($710,000 - $550,000) ÷ (13,000 units - 5,000 units )

= $160,000 ÷ 8,000 units

= $20

Now the fixed cost equal to

= High total cost - (High production volume × Variable cost per unit)

= $710,000 - (13,000 units × $20)

= $710,000 - $260,000

= $450,000

We simply applied the above formula