The manager at Screaming Trees has been trying to calculate the portion of the company's overhead expenses that is fixed and the portion that is variable. Over the past twelve months, the number of yards of processed was highest in July, when the total monthly overhead costs totaled $ 28,000 for 32,000 yards of mulch processed. The lowest number of yards of mulch processed in the last twelve months occurred in October, when total overhead costs were $ 23,000 for 25,000 yards of mulch processed. What is the fixed portion of the monthly overhead expenses?
| Highest Cost | $28,000 | ||||||
| Lowest Cost | $23,000 | ||||||
| Difference | $5,000 | ||||||
| Highest Activity | 32,000 | ||||||
| Lowest Activity | 25,000 | ||||||
| Difference | 7,000 | ||||||
| Variable cost per unit = | Divide the difference in the cost by the difference in the activity | ||||||
| = | $5,000/7,000 | ||||||
| = | $0.71 | ||||||
| Highest | Lowest | ||||||
| variable cost | $22,857 | $17,857 | |||||
| Fixed Cost | $5,143 | $5,143 | |||||
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