Question

Erkkila Inc. reports that at an activity level of 6,600 machine-hours in a month, its total variable inspection cost is $423,980 and its total fixed inspection cost is $162,426. What would be the average fixed inspection cost per activity unit at an activity level of 6,900 machine-hours in a month? Assume that this level of activity is within the relevant range.

Answer 1

$23.54

Step-by-step explanation:

Average fixed inspection cost per activity unit is arrived at by dividing the total amount of fixed inspection cost by the activity unit. Activity unit in this case is the total machine hour

6,600 machine-hours = $162,426 total fixed inspection cost

Since Erkkila Inc activity is within the relevant range, at 6,900 machine-hours the same fixed cost will be incurred.

Therefore:

6,900 machine-hours = $162,426 total fixed inspection cost

Average Fixed Inspection Cost Per Activity unit= $162,426/6,900 = $23.54