Answer:
Total cost=$1,640
Explanation:
Step 1: Calculate variable cost per unit
The variable cost can be calculated using the formula;
Variable cost=Total cost of high activity-total cost of low activity/highest activity units-lowest activity units
In our case;
Total cost of high activity=(0.4×4,100)=$1,640
Total cost of low activity=(0.6×2,100)=$1,260
Highest activity units=4,100
Lowest activity units=2,100
replacing;
Variable cost=(1,640-1,260)/(4,100-2,100)
Variable cost=380/2,000=0.19
Variable cost=$0.19 per mile
Step 2: Calculate fixed costs
Total cost=(Variable cost×units produced)+Total fixed cost
where;
Total cost=$1,640
variable cost=$0.19
units produced=4,100
Total fixed cost=c
replacing;
1,640=(0.19×4,100)+c
1,640=779+c
c=1,640-779
c=861
Total fixed cost=$861
Step 3: Construct total cost equation based on values above
Total cost=Total fixed cost+(variable cost×units produced)
Total cost=861+(0.19×4,100)=1,640
Total cost=$1,640
