Management has prepared a graph showing the total costs of operating branch warehouses
throughout the country. The cost line crosses the vertical axi... Accounting MCQs | Accounting MCQs

Management has prepared a graph showing the total costs of operating branch warehouses
throughout the country. The cost line crosses the vertical axis at $200,000. The total cost of
operating one branch is $350,000. The total cost of operating ten branches is $1,700,000.
For purposes of preparing a flexible budget based on the number of branch warehouses in
operation, what formula should be used to determine budgeted costs at various levels of
activity?

Y = $200,000 + $150,000XY = $200,000 + $170,000XY = $350,000 + $200,000XY = $350,000 + $150,000XShow Result

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (A) is correct.
Fixed cost (FC) is $200,000, the amount at which the total cost (TC) line
crosses the y-axis (when no warehouses are in operation). The total
variable cost (VC) of operating 10 warehouses is $1,500,000 ($1,700,000
TC - $200,000 FC), so the variable cost per warehouse is $150,000
($1,500,000 ÷ 10). Y (TC) is therefore equal to $200,000 (FC) plus
$150,000X (VC).