Question

Extron, Inc., has only variable costs and fixed costs. A review of the company's records disclosed that when 100,000 units were produced, fixed manufacturing costs amounted to $200,000 and the cost per unit manufactured totaled $5. On the basis of this information, how much cost would the firm anticipate at an activity level of 97,000 units?

Answer 1

Answer:

$491,000

Explanation:

If the total cost per unit was $5 at an activity level of 97,000 units and fixed costs are $200,000, the variable cost per unit is given by:

$VCU=\frac{\ 5*100,000-\ 200,000}{100,000}\\ VCU=\ 3 / unit$

When producing 97,000 units, each unit will cost $3 and there will be a fixed cost of $200,000. Total anticipated cost would be:

$C = \ 3*97,000+\ 200,000\\C=\ 491,000$

Extron, Inc. would anticipate a cost of $491,000.