Erkkila Inc. reports that at an activity level of 6,300 machine-hours in a month

Question

Erkkila Inc. reports that at an activity level of 6,300 machine-hours in a month, its total variable inspection cost is $425,780 and its total fixed inspection cost is $175,164.

What would be the average fixed inspection cost per unit at an activity level of 6,600 machine-hours in a month? Assume that this level of activity is within the relevant range.

Erkkila Inc. reports that at an activity level of 6,300 machine-hours in a month, its total variable inspection cost is $425,780 and its total fixed inspection cost is $175,164.

What would be the average fixed inspection cost per unit at an activity level of 6,600 machine-hours in a month? Assume that this level of activity is within the relevant range.

Explanation / Answer

Average fixed inspection cost = Total fixed inspection cost ÷ Total activity

= 175164/6600 Machine Hour = $26.54

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