Management accounts question

Ace Inc. estimates its total materials handling costs at two production levels as follows.

 

Cost                                   Gallons                 
$160000                           80000

$132000                           60000

 

  What is th the estimated total cost for handling 75,000 gallons?

The answer options are:

 

  • $165,000.

 

  • $153,000.

 

  • $150,000.

 

  • $146,000.

Anyone please let me know the answer with workings.

Thanks

Replies (3)

1) We bifurcate into Variable Cost & Fixed Cost:

 

Change in Amount ($)      160000-132000       28000 

---------------------------   =  --------------------- =  ------------ =  1.4 per unit (This is variable Cost)

Change in Quantity             80000-48000         20000

 

2) We multiply the Number of Gallons (i.e 80,000 X 1.4) = 112,000

 

3) We deduct the Total Cost for 80,000 Gallons From Step 2 ie. 160,000 Less 112,000 = 48,000 (This is Fixed Cost)

 

4) Now, we have VC = $ 1.4 per Gallon & Fixed cost at $ 48,000

 

5) Now, Multiply 75,000 Gallons (Given) by 1.4 (VC) (75,000 X 1.4) = 105,000

 

6) Add 48,000 (Fixed Cost) (105,000 + 48,000) = $ 153,000

ANS: Total Cost = $ 153,000

Thank you very much Mr. / Mrs. S...

 

Originally posted by : Anil

Thank you very much Mr. / Mrs. S...

 

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