Question

Frankin Corporations properties you with a summary of its total budgeted Production costs at three product levels: Volume in units 1000 2000 3000 Cost A 5000 5000 5000 Cost B 1400 1800 2200 Cost C 3000 6000 9000 Cost D 2000 2000 2500 Required: 1. Indicate the cost behavior for Cost A through D. 2. What would be the total budgeted cost be for Cost A and C if the company produces 2,500 units? 3. Give an example of a production cost that could have the same type of behavior as each of cost A through D.

Answer 1

Answer 1:-Cost behavior for cost A through D

Cost A :- For Cost A production cost is same with different production level, its means for cost A their is no variable cost only fixed cost that is 5,000.

Cost B :- Calculate variable cost per unit

Variable cost per unit = Difference in cost/difference in volume

Variable cost per unit =(1800-1400)/(2000-1000) =400/1000=0.40 per unit

Variable cost for 1000 unit for cost B = 1000*.40 =400 and fixed cost is (1400-400) equal to 1000  

Variable cost for 2000 unit for cost B = 2000*.40 =800 and fixed cost is (1800-800) equal to 1000

so, Fixed cost for cost B is 1000 and variable cost is 0.40 per unit

Cost C:-

Calculate variable cost per unit

Variable cost per unit = Difference in cost/difference in volume

Variable cost per unit =(6000-3000)/(2000-1000) =3000/1000=3 per unit

Variable cost for 1000 unit for cost C =1000*3 = 3000

Variable cost for 2000 unit for cost C = 2000*3 = 6000

Its means for Cost D their is no fixed cost only Variable cost is their that is 3 per unit.

Cost D:-

For cost D only fixed cost is their till 2000 units that is 2000 means if we produce 1000 unit or 2000 units cost will be 2000 for each production level.

But If we increase production from 2000 to 3000 their is increase of 500 for every 1000 units increased over and above 2000 units.

Answer 2 :- Budgeted cost if company produces 2,500 units
Particulars	Amount
Cost A:
Variable cost	-
Fixed Cost	5,000
Cost B:
Variable cost(0.40*2500)	1,000
Fixed Cost	1,000
Cost C:
Variable cost(3*2500)	7,500
Fixed Cost	-
Total Budgeted Cost	14,500

	Volume In unit
	2,000	3,000	4,000
Cost A:
Variable Cost	-	-	-
Fixed Cost	5,000	5,000	5,000
Total Cost A	5,000	5,000	5,000
Cost B:
Variable Cost (0.40per unit)	800	1,200	1,600
Fixed Cost	1,000	1,000	1,000
Total Cost B	1,800	2,200	2,600
Cost C:
Variable Cost(3 per unit	6,000	9,000	12,000
Fixed Cost	-	-	-
Total Cost C	6,000	9,000	12,000
Cost D:
Variable Cost	-	-	-
Fixed Cost	2,000	2,000	2,000
Semivariable Cost		500	1,000
Total Cost D	2,000	2,500	3,000