Ace Inc. estimates its total materials handling costs at two production levels as follows.
Cost Gallons
$160000 80000
$132000 60000
What is th the estimated total cost for handling 75,000 gallons?
The answer options are:
Anyone please let me know the answer with workings.
Thanks
1) We bifurcate into Variable Cost & Fixed Cost:
Change in Amount ($) 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
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