Question

Erkkila Inc. reports that at an activity level of 6,200 machine-hours in a month, its total variable inspection cost is $425,630 and its total fixed inspection cost is $170,885. What would be the average fixed inspection cost per unit at an activity level of 6,500 machine-hours in a month? Assume that this level of activity is within the relevant range.

Answer 1

Answer:

The average fixed inspection cost per unit at an activity level of 6,500 machine-hours in a month is 26.29 per unit.

Explanation:

Given that,

Activity level = 6,200 machine hours

Total variable inspection cost = $425,630

Total fixed inspection cost =  $170,885

Average fixed inspection cost per unit = ?

Since the question is asking for average fixed inspection, so the fixed inspection cost would remain same as it does not whether the machine hours would increase or not.

So,

Average fixed inspection cost per unit = Fixed inspection cost ÷ Machine hours

                                                               = $170,885 ÷ 6,500  

                                                               = 26.29

Thus, the average fixed inspection cost per unit at an activity level of 6,500 machine-hours in a month is 26.29 per unit.