Question

9. Younger Corporation reports that at an activity level of 8,700 units, its total variable cost is $653,109 and its total fixed cost is $658,416.

Required:

For the activity level of 8,800 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity level is within the relevant range.

10. Match the following terms to the appropriate statement by placing the letter to the left of each statement.

a.Committed fixed cost b. Fixed Cost c. Variable Cost d. Total Cost e. Discretionary Fixed Cost f. High-low method g. Mixed Cost h. Relevant Range i. Scattergraph j. Step cost

1. Cost that does not change in total as long as production is in the relevant range.

2. Fixed costs that cannot be changed over the short run.

3. Cost that changes in total as production changes but remains unchanged per unit.

4. The sum of fixed costs and variable costs

5. The normal level of operating activity.

6. Fixed costs that can be changed over the short run.

7. A cost that has both a fixed and variable component.

8. A cost that is fixed over only a small range of activity.

9. A graph that shows total costs in relation to volume, or activity level.

10. A method of estimating the fixed and variable cost components of a mixed cost that requires using only two data points, the lowest point of activity and the highest point of activity.

11. Indicate which of the following costs are classified as mixed or step costs.

	Mixed	Step
a. Electrical Charge for the Month
b. Factory Overhead
c. Wages of Quality Control employee who gets paid a bonus for every 10 defects found
d. Charges for an employee development seminar where the cost includes a speaker fee and cost of supplies for each attendee
e. Phone plan where you purchase 10-minute increments of time

12. Vest Construction Company’s cost of renting a crane for the last four months is as follows:

Month	Hours of Operation	Rental Cost
January	35	$1,200
February	42	$1,350
March	45	$1,400
April	40	$1,290

Using the high-low method, what is the company’s estimated variable and fixed component of operating expenses? What is the total cost equation? What would be the estimated total cost if a crane is rented for 60 hours per month?

Answer 1

Answer of Question 9:

(a)

Variable Cost per unit = Total Variable Cost / No. of Units
Variable Cost per unit = $653,109 / 8,700
Variable Cost per unit = $75.07

Total Variable Cost = No. of Unit * Variable Cost per unit
Total Variable Cost = 8,800 * $75.07
Total Variable Cost = $660,616

(b)

Total Fixed Cost = $658,416

(c)

Total Cost = Total Variable Cost + Total Fixed Cost
Total Cost = $660,616 + $658,416
Total Cost = $1,319,032

(d)

Average Variable Cost per unit = Total Variable Cost / No. of Units
Average Variable Cost per unit = $660,616 / 8,800
Average Variable Cost per unit = $75.07

(e)

Average Fixed Cost per unit = Fixed Cost / No. of Units
Average Fixed Cost per unit = $658,416 / 8,800
Average Fixed Cost per unit = $74.82

(f)

Average Total Cost per unit = Average Variable Cost per unit + Average Fixed Cost per unit
Average Total Cost per unit = $75.07 + $74.82
Average Total Cost per unit =$149.89