Mighty Muffler, Inc., operates an automobile service facility that specializes in replacing mufflers on compact cars. The following table shows the costs incurred during a month when 600 mufflers were replaced.
Required:
Fill in the missing amounts.
The Correct Answer and Explanation is :
o fill in the missing amounts in the table for Mighty Muffler, Inc., we need to understand the behavior of fixed and variable costs.ixed costs remain constant regardless of the number of units produced, while variable costs change in direct proportion to the number of units.
Given Data:
- umber of muffler replacements: 600- otal fixed costs for 600 replacements: $56,400- otal variable costs for 600 replacements: $32,400- otal cost for 600 replacements: $88,800
Calculations:
- Fixed Costs:
- ixed costs remain the same regardless of the number of units. – or 500 and 700 replacements, the fixed costs are also $56,400.
- Variable Costs:
- ariable cost per muffler = Total variable costs / Number of replacements – ariable cost per muffler = $32,400 / 600 = $54 – or 500 replacements: – otal variable costs = 500 * $54 = $27,000 – or 700 replacements: – otal variable costs = 700 * $54 = $37,800
- Total Costs:
- otal cost = Fixed costs + Variable costs – or 500 replacements: – otal cost = $56,400 + $27,000 = $83,400 – or 700 replacements: – otal cost = $56,400 + $37,800 = $94,200
- Cost per Muffler Replacement:
- ixed cost per muffler = Fixed costs / Number of replacements – ariable cost per muffler = Variable costs / Number of replacements – otal cost per muffler = Total cost / Number of replacements
- or 500 replacements: – ixed cost per muffler = $56,400 / 500 = $112.80 – ariable cost per muffler = $27,000 / 500 = $54 – otal cost per muffler = $83,400 / 500 = $166.80
- or 600 replacements: – ixed cost per muffler = $56,400 / 600 = $94 – ariable cost per muffler = $32,400 / 600 = $54 – otal cost per muffler = $88,800 / 600 = $148
- or 700 replacements: – ixed cost per muffler = $56,400 / 700 = $80.57 – ariable cost per muffler = $37,800 / 700 = $54 – otal cost per muffler = $94,200 / 700 = $134.57
Completed Table: Number of Muffler Replacements 500 600 700 Total Costs: Fixed Costs $56,400 $56,400 $56,400 Variable Costs $27,000 $32,400 $37,800 Total Cost $83,400 $88,800 $94,200 Cost per Muffler Replacement: Fixed Cost $112.80 $94.00 $80.57 Variable Cost $54.00 $54.00 $54.00 Total $166.80 $148.00 $134.57 Explanation:
n cost accounting, it’s essential to distinguish between fixed and variable costs to understand how total costs change with production volume.ixed costs, such as rent or salaries, remain constant regardless of output.ariable costs, like materials, vary directly with production volume.
y analyzing the given data, we determined that the fixed costs total $56,400, which remains unchanged across different production levels.he variable cost per muffler was calculated to be $54.sing these figures, we computed the total costs and per-unit costs for 500, 600, and 700 muffler replacements.
nderstanding these cost behaviors allows businesses to make informed decisions about pricing, budgeting, and forecasting.or instance, as production increases, the fixed cost per unit decreases, leading to economies of scale.owever, variable costs per unit remain constant.his analysis helps in setting appropriate pricing strategies to ensure profitability at different production levels.