Question

Commerce Corporation has a high probability of operating at 46,000 activity hours during the upcoming period, and lower probabilities of operating at 36,000 hours and 56,000 hours. The company's flexible budget revealed the following: 36,000 Hours 46,000 Hours 56,000 Hours Variable costs $ 162,000 $ 207,000 $ 252,000 Fixed costs 880,000 880,000 880,000 Commerce’s flexible-budget formula, where Y is defined as total cost and AH represents activity hours, is: (Round intermediate calculations to 2 decimal places.)

Answer 1

Answer:

Y = $4.50 AH + $880,000

Explanation:

Hours                            36,000      46,000        56,000

Var. Cost                      $162,000   $207,000   $252,000

Var. Cost per hour (*)     $4.50         $4.50          $4.50

Fixed cost                    $880,000  $880,000   $880,000

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(*) Var. Cost per hour = Var. Cost / Hours

Y = $4.50 AH + $880,000

Hope this helps!