Question

What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range.

Answer 1

Answer:

TC = $971,919

Step-by-step explanation:

Given complete question is as follows:

" Cooke Corporation reports that at an activity level of 7,000 units, the total variable cost is $590,730, and the total fixed cost is $372,750.

What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range."

Solution:

- The total cost (TC) is the sum of the fixed cost (FC) and variable cost (VC):

                                        TC = FC + VC

- The fixed cost remains constant at every unit level i.e [email protected],000 = [email protected],100 = $372,750.

- The variable cost VC is a linear function of number of units. The marginal variable cost (MVC) is:

                                        MVC = VC / numbe of units

                                        MVC = 590,730 / 7000

                                        MVC = $84.39/units

- The VC cost @7,100 units is as follows:

                                        [email protected],100 = [email protected],000 + MVC*( 7,100 - 7,000)

                                        [email protected],100 = $590,730 +  $84.39/units*( 100 )

                                        [email protected],100 = $590,730 +  $8439

                                        [email protected],100 = $599,169

- The total cost for 7,100 units is:

                                        TC = FC + VC

                                        TC = $372,750 + $599,169

                                        TC = $971,919