How to Calculate Average Fixed Inspection Cost per Unit

What is the average fixed inspection cost per unit at an activity level of 7,000 machine-hours in a month?

A $23.79 B $88.16 C $24.86 D $38.45

Answer:

To find the average fixed inspection cost per unit at 7,000 machine-hours, the total fixed inspection cost of $166,530 is divided by 7,000 machine-hours, resulting in $23.79 per machine-hour.

Explanation:

Hey there! Let's dive into how to calculate the average fixed inspection cost per unit at an activity level of 7,000 machine-hours in a month.

First, we have the total fixed inspection cost at an activity level of 6,700 machine-hours, which is $166,530.

When the activity level increases to 7,000 machine-hours, we want to determine the average fixed inspection cost per unit. Since fixed costs remain constant within the relevant range, we can simply divide the total fixed inspection cost by the new activity level of 7,000 machine-hours.

So, the calculation looks like this:

$166,530 / 7,000 machine-hours = $23.79 per machine-hour

Therefore, the average fixed inspection cost per unit at 7,000 machine-hours in a month would be $23.79, which corresponds to option A.