Units Produced Total Costs
8,100 $525,000
11,250 630,000
18,100 690,000
a. Determine the variable cost per unit and the total fixed cost.
b. Based on part (a), estimate the total cost for 12,000 units of production.
Answer:
a. Variable Cost per Unit =
Variable Cost per Unit =
Difference in Total Costs
Difference in Units Produced
$690,000 – $525,000
18,100 units – 8,100 units
Variable Cost per Unit = $165,000
10,000 units
= $16.50 per unit
The fixed cost can be determined by subtracting the estimated total variable
cost from the total cost at either the highest or lowest level of production, as
follows:
Total Cost = (Variable Cost per Unit × Units Produced) + Fixed Costs
Highest level:
$690,000 = ($16.50 × 18,100 units) + Fixed Costs
$690,000 = $298,650 + Fixed Costs
$391,350 = Fixed Costs
Lowest level:
$525,000 = ($16.50 × 8,100 units) + Fixed Costs
$525,000 = $133,650 + Fixed Costs
$391,350 = Fixed Costs
b. Total Cost = (Variable Cost per Unit × Units Produced) + Fixed Costs
Total cost for 12,000 units:
Variable cost:
Units……………………………………………… 12,000
Variable cost per unit………………………… × $16.50
Total variable cost…………………………… $198,000
Fixed costs……………………………………… 391,350
Total cost……………………………………… $589,350