00:01
Hello everyone so this question consists of three parts so in first part of the question it says classify each of the cost as being either variable fixed or semi variable so the total cost remains same within the capacity it is therefore it is fixed cost cost per hour decreases with increase in usage then cost per hour remains same as the cost per hour changes with respect to usage.
01:24
So it is variable cost.
01:39
Next, cost per hour also changed.
01:53
That means it is not a variable cost and total cost also changed.
02:10
That means it is not a fixed cost as well.
02:23
So if it not falls within any of the criteria, it is a semi -variable cost.
02:36
Now, semi -variable cost is the combination of fixed cost component and variable cost.
02:43
Moving to the next part of the question, which says, calculate amounts for the two unknowns in the preceding table.
02:56
So, cost per hour a is equals to total cost divided by number of hours which is equals to $4 ,60 ,000 divided by $1 ,998 ,000 which is equal to 2 .32 per hour.
03:29
Now total cost b is equal to 12.
03:38
$8 multiplied by 66 ,000 hours which is equal to $844 ,800.
03:51
Now moving to the last part of the question which says calculate the total amount that virgus would expect at 85 % utilization rate for cost a, cost b and cost c.
04:11
So, using high, low method, semi -variable cost is analyzed as follows.
04:17
Variable cost per unit is equals to cost at highest level, that is $1 .35 ,000, sorry, $13 ,000 ,000 minus cost at lowest level, that is $7 ,000 ,000.
05:02
Dollars divided by difference of activity levels that is 90 % minus 30 % which on solving gives us $9 ,500 for 1 % change in activity.
05:29
Now fixed cost component taking 30 % level is equals to total cost that is $780 ,000...