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Please help me answer this question. A co has a manufacturing capacity of 10,000units. The flex production cost budget of the company is as follows:
Capacity : 60% 100%
Total Production cost 11,280.00 15,120.00.What is the budgeted total production cost if the company operates at 85% capacity?
first find out variable cost
At 60% it is going to produce 6000 units (60% x 10000) cost is 11280
at 100% 10000 units cost is 15120
variable cost is change in cost due to change in production = 15120-11280/ (10000-6000)=3840/4000=0.96Then fixed cost = total cost – variable cost
at 10000 units
total cost is 15120 and variable cost is 0.96 (calculated above) * 10000= 15120-9600=5520
cross check your answer, fixed cost is same at any level of production so to check is 5120 is right do the same step for 6000 units at 60% capacity
total cost 11280-6000 x 0.96=5520 so you are right
now you have fixed cost of 5520 and variable cost per unit of 0.96 so i feel you can do the rest for any kind of capacity.
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