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Maintenance cost at 7,200 machine hours = Variable cost + Fixed cost = (7, 200 x $3) + $30,000 = $51, 600 Therefore, option "b. $51,600" is correct.

Maintenance cost at 7,200 machine hours = Variable cost + Fixed cost = (7, 200 x $3) + $30,000 = $51, 600 Therefore, option "b. $51,600" is correct.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I need to figure out from where the $ 3 dollar amount is coming from

Step 1 Fixed cost os fixed at every level of output. Whereas, variable cost varies with the change in output. Step 2 Calculation of expected maintenance cost: Highest cost-Lowest cost Variable cost per unit = Highest activity level-Lowest activity level $130,000–S100,000 10,000-5,000 = $6 Per unit variable cost for indirect material Variable cost of indirect material Machine hour $10,000 5,000 = $2 Per unit variable cost for maintenance = Variable cost per unit = Per units variable cost for indirect material = $6 – $2 = $4 Fixed cost maintenance = $50, 000 – (5,000 x 4) = $30, 000 Maintenance cost at 7, 200 machine hours = Variable.cost + Fixed cost = (7, 200 x $3) + $30, 000 = $51, 600 Therefore, option "b. $51,600" is correct.
Transcribed Image Text:Step 1 Fixed cost os fixed at every level of output. Whereas, variable cost varies with the change in output. Step 2 Calculation of expected maintenance cost: Highest cost-Lowest cost Variable cost per unit = Highest activity level-Lowest activity level $130,000–S100,000 10,000-5,000 = $6 Per unit variable cost for indirect material Variable cost of indirect material Machine hour $10,000 5,000 = $2 Per unit variable cost for maintenance = Variable cost per unit = Per units variable cost for indirect material = $6 – $2 = $4 Fixed cost maintenance = $50, 000 – (5,000 x 4) = $30, 000 Maintenance cost at 7, 200 machine hours = Variable.cost + Fixed cost = (7, 200 x $3) + $30, 000 = $51, 600 Therefore, option "b. $51,600" is correct.
7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month The manager of the company believes that the cost driver is the number of machine-hours used in its production facility. These costs for the last four months in 2020 are given below. Total factory overhead 2$ Machine-hours 6,500 10,000 8,500 104,400 $ 130,000 $ 118,500 $ 100,000 September October November December 5,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 2$ 10,000 50,000 24 100,000 Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.) A. 24 58,800 В. 24 51,600 С. 2$ 73,200 D. 2$ 37,920 None of the above E.
Transcribed Image Text:7 Augusta Inc. is a manufacturing company whose total factory overhead costs fluctuate somewhat from month to month The manager of the company believes that the cost driver is the number of machine-hours used in its production facility. These costs for the last four months in 2020 are given below. Total factory overhead 2$ Machine-hours 6,500 10,000 8,500 104,400 $ 130,000 $ 118,500 $ 100,000 September October November December 5,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 5,000 machine-hours level of activity as follows: Indirect materials (variable) Rent (fixed) Maintenance (mixed) Total factory overhead costs 2$ 10,000 50,000 24 100,000 Assume that all data are within the relevant range, using the high-low method how much maintenance cost would you expect the company to incur at an operating level of 7200 machine-hours? (Round to the nearest dollars.) A. 24 58,800 В. 24 51,600 С. 2$ 73,200 D. 2$ 37,920 None of the above E.
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