Answer:
$39,800
Explanation:
From the question above Morrow company has decided to use the measuring cost function method to find its total cost
- $68,400 is the highest cost and $37,600 is the lowest cost
- 6,000 is the highest number of hours and 3,200 is the lowest
The first step is to calculate the cost driver. Let's use the alphabet c to represent the cost driver
(68,400-37,600) / (6,000-3,200)
c = 30,800/2,800
c= $11
Cost driver= $11
The next step is to find the fixed cost. Let's use the alphabet f to represent the fixed cost
68,400= f + ( 11×6000)
68,400= f + 66,000
f= 68,400-66,000
f= $2,400
Fixed cost= $2,400
The final step is to calculate the cost function
Cost function= fixed costs+variable costs×number of units
Fixed cost= $2,400
Variable cost= $11
Number of units= 3,400 hours
= 2,400+(11×3,400)
= 2,400+ 37,400
= $39,800
Hence the total cost at an operating level of 3,400 hours is $39,800
