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activity levels (units) 4000 6000 7500
total cost 40800 50000 54800
variable cost per unit is constant within this activity range and there is a step up of 10 percent in the total fixed costs when the activity level exceeds 5500 units.solution in text
variable cost per unit = 54800-50000 / 7500-6000=3.20
total fixed cost above 5500 units = 54800-(7500*3.20)=30800
total fixed cost below 5500 units = (10/11) * 30800=28000what i do not understand is why the “(10/11)” was used to arrive at the answer , i tried it over in my mind many times but cannot understand where the 11 came from
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hi. suppose you are given total fixed costs of 28000 the other information as is. to get t.f costs at the higher activity level you would say (1.1)*28000 = 30800 (1.1) is derived as 110%/100% becoming
(110/100)*28000=30800. now that you have solved 30800 in your solution. to get the value of 28000 you substitute as follows30800*(100/110) = ?. the discount factor of (100/110) can simplified as 10/11 i.e removing the zeros from the numerator and denominator. hope this helps
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