Cost Accounting: Average Fixed Inspection Cost Per Unit Calculation
What is the average fixed inspection cost per unit at an activity level of 7,700 machine-hours in a month?
At an activity level of 7,400 machine-hours in a month, Erkkila Incorporated's total variable inspection cost is $425,180 and its total fixed inspection cost is $196,658.
Answer
The average fixed inspection cost per unit at an activity level of 7,700 machine-hours in a month would be approximately $25.54.
To calculate the average fixed inspection cost per unit, we divide the total fixed inspection cost by the total activity level number (7,700 machine-hours).
The total fixed inspection cost at an activity level of 7,400 machine-hours is $196,658. This fixed cost does not change with the level of activity as it is a fixed cost.
By using the formula: Average fixed cost = Total fixed cost / Total activity level number, we find that the average fixed inspection cost per unit would be approximately $25.54.
Therefore, at an activity level of 7,700 machine-hours in a month, the average fixed inspection cost per unit would be about $25.54.