Question

Exercise 2-30 Fixed and Variable Costs; Automobile Service; Missing Data (LO 2-1, 2-8)

Mighty Muffler, Inc. operates an automobile service facility that specializes in replacing mufflers on compact cars. The following table shows the costs incurred during a month when 900 mufflers were replaced. (Round "cost per muffler" to 2 decimal places.)

Number of Muffler Replacements 800 900 1000 Total costs: Fixed costs $ 82,800 Variable costs 46,800 Total costs $ 129,600 Cost per muffler replacement: Fixed cost Variable cost Total cost per muffler replacement

Answer 1

Total Fixed cost will always remain same.

Variable cost per unit = $46,800 / 900 = $52

Total Variable cost = $52 X Units produced

Fixed cost per unit = Total Fixed costs / Units produced

Variable cost per unit = Total Variable costs / Units produced

	800	900	1,000
Total costs:
Fixed costs	$82,800	$82,800	$82,800
Variable costs	$41,600	$46,800	$52,000
Total costs	$124,400	$129,600	$134,800
Cost per muffler replacement
Fixed costs	$103.50	92	$82.80
Variable costs	$52	$52	$52
Total cost per muffler replacement	$155.50	$144	$134.80