Hermes Logistics had maintenance costs of $63,000 at an output level of 18,000 units. The maintenance cost was a mixed cost, and the fixed portion was $36,000. You have been asked to calculate the total maintenance cost for an output level of 27,000 units. What will you report is the total maintenance cost? A : $45,000 B : $76,500 C : $67,500 D : $81,000

To calculate the total maintenance cost for an output level of 27,000 units, we need to separate the mixed cost into its fixed and variable components.

We are given: - Total maintenance cost at 18,000 units = $63,000 - Fixed portion of the maintenance cost = $36,000

To find the variable cost per unit, we subtract the fixed cost from the total cost and then divide by the number of units to get the variable cost per unit.

Variable cost at 18,000 units = Total cost - Fixed cost Variable cost at 18,000 units = $63,000 - $36,000 = $27,000

Now that we have the total variable cost at 18,000 unit level, we find the cost per unit: Variable cost per unit = Variable cost at 18,000 units / Number of units Variable cost per unit = $27,000 / 18,000 units = $1.50 per unit

Now, we can calculate the total variable cost for the different output level of 27,000 units: Total variable cost at 27,000 units = Variable cost per unit * Number of units Total variable cost at 27,000 units = $1.50 * 27,000 units = $40,500

Finally, we add the fixed cost to the total variable cost to find the total maintenance cost for 27,000 units: Total maintenance cost = Fixed cost + Total variable cost at 27,000 units Total maintenance cost = $36,000 + $40,500 = $76,500

Therefore, the total maintenance cost for an output level of 27,000 units is $76,500, which corresponds to option B: $76,500.

Extra: In accounting, mixed costs are costs that have both fixed and variable components. The fixed component remains constant regardless of the level of output, whereas the variable component changes with the level of output. To predict total costs at different levels of activity, it is often necessary to split mixed costs into their fixed and variable elements using techniques like the high-low method or regression analysis. The understanding of how costs change with activity levels is fundamental in budgeting and decision-making processes within a business.