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.

Answer 2

Total Costs at 97000 units is $491,000 using distribution method.

Total cost based problem:

What information do we have?

Cost per unit = $5

Number of unit = 100,000

Manufacturing costs = $200,000

Total costs = 100,000 × 5

Total costs = $500,000

Variable costs = $500,000 - $200,000

Variable costs = $300,000

Variable cost per unit = $300,000 / 100,000

Variable cost per unit = $3

Computation of cost at 97000 Units:

Particulars                                    Amount

Variable costs (97000×$3)           $291,000

Fixed Costs                                   $200,000

Total Costs at 97000 units           $491,000

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