ExpertMedium2 marksShort Answer
ACCA · Question 03 · Nature, Source and Purpose of Management Information
A public water utility incurs a base maintenance cost of $10,000 per month for up to 5,000 gallons processed. For every additional 1,000 gallons processed (or part thereof), an extra step-fixed cost of $2,000 is incurred.
Calculate the total maintenance cost if 7,500 gallons are processed in a month. (Enter numbers only, no commas or currency symbols)
A public water utility incurs a base maintenance cost of $10,000 per month for up to 5,000 gallons processed. For every additional 1,000 gallons processed (or part thereof), an extra step-fixed cost of $2,000 is incurred.
Calculate the total maintenance cost if 7,500 gallons are processed in a month. (Enter numbers only, no commas or currency symbols)
How to approach this question
1. Identify the base cost for the first 5,000 gallons. 2. Calculate the excess gallons. 3. Determine how many 1,000-gallon steps are needed for the excess. 4. Multiply the steps by the step cost and add to the base cost.
Full Answer
Base cost for 5,000 gallons = $10,000.
Excess gallons = 7,500 - 5,000 = 2,500 gallons.
Steps required = 2,500 / 1,000 = 2.5 steps. Since any part of a step incurs the full cost, this rounds up to 3 steps.
Additional cost = 3 steps * $2,000 = $6,000.
Total cost = $10,000 + $6,000 = $16,000.
Common mistakes
Calculating 2.5 * $2,000 = $5,000, failing to realize step costs apply in full for any part of the step.
Practice the full ACCA MA — Management Accounting Practice Exam 4
38 questions · hints · full answers · grading
More questions from this exam
Q01A global environmental NGO is planning its resource allocation for the next five years to combat ...EasyQ02A fintech startup is analyzing data to determine the viability of launching a new micro-lending a...EasyQ04An agricultural cooperative produces organic fertilizer. Which of the following costs would be cl...MediumQ05A cross-border logistics company uses an additive time series model to forecast shipping volumes....MediumQ06A heavy manufacturing firm tracks the cost of two key raw materials.
Base Year (Year 0): Materia...Hard