Cost Item Cost behavior Cost amount Broadcast hours
during month
Production Crew Variable
July $4,875 390
September $8,000 640

Supervisory Fixed
employees
July $5,000 390
September $5,000 640

Required:

1. Compute the cost per broadcast hour during July and September for each of these cost items.

2. What will be the total amount incurred for each of these costs during December, when the station’s activity will be 420 broadcast hours?

3. What will be the cost per broadcast hour in December for each of the cost items?

1.

Production Crew Variable cost

July $12.50 per hr

September $12.50 per hr

Supervisory Fixed cost

July $12.82 per hr

September $7.81 per hr

2.

Production Crew = $5,250

Supervisory Employees  = $5,000

Total cost = $10,250

3.

Production Crew Variable cost = $12.50 per hr

Supervisory Fixed cost = $11.90 per hr

Explanation:

Variable cost is those which vary with change in activity / sales / output whereas total Fixed cost remains the same, whatever the level of activity is.

In this question the Production crew variable cost will change with the change in Production hours and Total Supervisory fixed cost will remain the same whether there is a change in production hours.

1.

We can calculate the per hour cost dividing total variable cost per month by total numbers of hours

Production Crew Variable cost

July

Cost per hour = $4,875 ÷ 390 = $12.50 per hr

September

Cost per hour = $8,000 ÷ 640 = $12.50 per hr

Supervisory Fixed cost

July

Cost per hour = $5,000 ÷ 390 = $12.82 per hr

September

Cost per hour = $5,000 ÷ 640 = $7.81 per hr

2.

Variable cost varies with the change in numbers of hours, so variable cost for 420 hours.

Production Crew= 420 broadcast hours x $12.50 per hr = $5,250

Fixed cost remains the same

Supervisory Employees 5,000

Total cost =$5,250 + $5,000 =  $10,250

3.

Production Crew Variable cost

Cost per hour = $5,250 ÷ 420 = $12.50 per hr

Supervisory Fixed cost

Cost per hour = $5,000 ÷ 420 = $11.90 per hr

answer///supply is elastic, and demand is inelastic;