Mount Company incurred a total cost of $8,600 to produce 400 units of pulp. Each unit of pulp required 5 direct labor hours to complete. What is the total fixed cost if the variable cost was $1.50 per direct labor-hour? A. $2,600 B. $5,600 C. $1,700 D. $4,100

The correct answer is option (B).

Explanation:

According to the scenario, the given data are as follows:

Total cost = $8,600

Total units = 400 Units

Direct labor hour per unit = 5

Variable cost = $1.50

So, we can calculate the fixed cost by using following formula:

Fixed cost = Total cost - Total Direct labor cost

Where, Total direct labor cost = $1.50 * 5 * 400 = $3,000

By putting the value in the formula, we get

Fixed cost = $8,600 - $3,000

= $5,600