Question

Flo produces flower bouquets for receptions and she has two levels of production. If she sells the bouquets to smaller events, she sells them in bundles of 250 for $45 each. The direct cost per unit is $20 and the indirect cost per unit is $15. When she provides the bouquets for larger events, she sells them in bundles of 500 at $40 each bouquet. The direct cost comes up to $20 per unit, and the indirect cost is $11

What is the estimated cost if Flo sells a bundle of 300 Flowers?

		$8,751
		$9,750
		$4,100
		$10,100

Answer 1

Total indirect cost if 250 bundles are sold = 250*15 = 3750

Total indirect cost if 500 bundles are sold = 500*11 = 5500

Indirect Variable cost = (Cost at highest activity - Cost at lowest activity)/(Highest activity-Lowest activity)

= (5500-3750)/(500-250) = 7

= 7 per bundle

Indirect Fixed cost = Total cost - Total Variable cost

= 5500 - (500*7) = 5500 - 3500

= $2000

Estimated indirect cost for 300 flowers

= Variable (300*7) + Fixed 2,000

= 4,100

Total estimated cost for 300 flowers = Direct + Indirect

= (300*20) + 4,100

= 6,000 + 4,100

= 10,100