Hello Ahmed,
The analysis and derivation of the amount of fixed cost must be calculated using total production costs, i.e. combining labor and other manufacturing costs.
- Total Production Cost for Week 1 @ production of 5,000 units is $17,000 + $25,000 = $42,000
- Total Production Cost for Week 2 @ production of 6,000 units is $19,500 + $28,000 = $47,500
Starting point is: Total Cost = Fixed Cost + Variable Cost
Week 2 equation: $47,500 = FC + (VC/unit X 6,000 units)
Week 1 equation: $42,000 = FC + (VC/unit X 5,000 units)
Derived equation: $5,500 = 1,000UVC
UVC = $5.50/unit
By substitution using either equation 1 or 2, Fixed Cost comes out to be $14,500.
42,000 = FC + (5.50 X 5,000)
FC = $14,500
47,500 = FC + (5.50 X 6,000)
FC = $14,500
I hope this helps.
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Angel Secerio CMA, CPA
Director/Manager
Insights Financial Review Services Inc
Makati City
Philippines
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Original Message:
Sent: 06-08-2013 06:26 PM
From: Ahmed Abd El Aziz
Subject: Fixed cost alac
Central Vacuum Company recorded the following production costs during the previous two-week period. Assuming both weeks fall in the same relevant range, what was the total fixed cost during week one?
the answer 14500 ???
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Ahmed Abd El Aziz
Director/Manager
Ishraqaat Al-Taqwwa Group
Kuwait
Kuwait
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