Answer :
Final answer:
To estimate the handling cost for 75,000 kilos, the variable cost per kilo is calculated, and the fixed cost is determined. The total estimated cost for handling 75,000 kilos by Mat Co. is $153,000.
Explanation:
To estimate Mat Co.'s materials handling cost for handling 75,000 kilos, we first need to determine the variable cost per kilo by using the two given activity levels. The change in cost divided by the change in activity level (kilos handled) gives us the variable cost per kilo. With that, we calculate the fixed cost using either of the two initial cost points.
Change in cost = $160,000 - $132,000 = $28,000.
Change in kilos = 80,000 - 60,000 = 20,000 kilos.
Variable cost per kilo = $28,000 ÷ 20,000 kilos = $1.40 per kilo.
Fixed cost can be found by taking one of the total costs and subtracting the variable cost portion at that activity level, for example:
Fixed cost = Total cost - (Variable cost per kilo × Kilos handled)
Fixed cost using 80,000 kilos = $160,000 - ($1.40 × 80,000) = $160,000 - $112,000 = $48,000
Now, to estimate the materials handling cost for 75,000 kilos:
Estimated total cost = Fixed cost + (Variable cost per kilo × Kilos handled)
Estimated total cost for 75,000 kilos = $48,000 + ($1.40 × 75,000) = $48,000 + $105,000 = $153,000
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