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i would like to see his workings, especially how the teacher got his variable cost per unit amd how the effect of the step up was reflected in the calculation.
first, the stepped up fixed cost of 1000 will b deducted from the total cost of 10000, i.e 10000-1000= 9000
now perform your high and low analysis, (9000-4000)/(1500-500)= 5. this is your variable cost per unit.
remember your formula, y=a+bx. Y=total cost, a=fixed cost n b=variable cost.
Now, finding our A, u can use either of d high or low activity level. Lets use the high here,
9000=a+(5*1500). 9000=a+7500, a=9000-7500, a=1500.
now, A=1500 is your fixed cost before step and (1500+1000)= 2500 is your fixed cost after step up.
now determine your total cost of 800 and 2000.
Use this formulas: TC=1500+5(x) for cost below the step up and TC=2500+5(x) for cost above the step up.
For 800, which is below the stepup, we use TC= 1500+(5*800) which will give you a total cost of 5500; while for 2000 which is above the stepup, we use TC= 2500+(5*2000) which will give you a cost of 12500. That is all, i hope this helps.
