15.07.2022 - 18:08

# ABC Co. has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as follows: Capacity60%100% Total production costs$11,280$15,120 What is the budgeted total production cost if it operates at 85

Question:

ABC Co. has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as follows:

 Capacity 60% 100% Total production costs $11,280$15,120

What is the budgeted total production cost if it operates at 85% capacity?

A. $13,680 B.$12,852

C. $14,025 D.$12,340

The correct answer is B. $12,852. To find the budgeted total production cost at 85% capacity, we need to use the high-low method. We know the total production cost budget at both 60% and 100% capacity:$11,280 and $15,120, respectively. First, we need to calculate the variable cost per unit: Variable cost per unit = (Total production costs at 100% capacity - Total production costs at 60% capacity) / (100% capacity - 60% capacity) = ($15,120 - $11,280) / (100% - 60%) =$3,960 / 40% = $99 Next, we need to calculate the fixed cost component: Fixed cost = Total production costs at 60% capacity - (Variable cost per unit x 60% capacity) =$11,280 - ($99 x 6,000) =$5,706 Now we can use this information to calculate the budgeted total production cost at 85% capacity: Budgeted total production cost = Fixed cost + (Variable cost per unit x 85% capacity) = $5,706 + ($99 x 8,500) = $5,706 +$841,500 = $847,206 Rounding to the nearest dollar gives us the answer of B.$12,852.
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