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An organisation has the following total costs at two activity levels:
Activity level (units) 16,000 22,000
Total costs ($) 135,000 170,000
Variable cost per unit is constant within this range of activity but there is a step up of $5,000 in the total fixed
costs when the activity exceeds 17,500 units.
What is the total cost at an activity of 20,000 units?
A $155,000
B $158,000
C $160,000
D $163,000sir, why is 5000 deducted from the total cost of 22000 while calculating vcpu?
sir, i am facing problem in reading the graph . only, basic graphs like fixed, variable, step are easy for me but other graphs are creating difficulties to me.. plz help
5,000 is deducted because the fixed overheads increase by 5000.
What other graphs are you having problems with?
I can’t think for the moment of any other graphs you would have to deal with apart from those dealing with costs!
hmm there are few problems showing the graph and listing 4 options related with graph. so, I always fail to make right answer 🙁 simple fixed and variable graphs are not so problematic.
Can you please correct me the below calculation which one is correct and please explain the reason for why ?
my calculation :
H – 22000 units $170,000 – set up cost $ 5000 = $165,000
L – 16000 units $135,0006000 units & $$30,000
Working for answer A & B : $155,000
VC : $30000 / 6000 units = $5 per unit
FC : 165,000 – (22000 units x $5) = $55000 ( answer A)
FC : $135000 – (16000 units x$5) = $55000 (answer B)y=$55,000 + ( 20,000 units x $5 ) = $155,000
Working for answer C : $160,000
y =$55,000 + ( $5×20,000 units) + $5000 = $160,000I would like to ask which answer should be correct ? to calculate FC whether should always to remember the step up calculation must use the low unit & low cost ?
thank you
Answer C is correct because the question asks for the total cost when 22,000 units are produced.
It does not ask for the fixed cost separately – that is just part of the workings.Possible to ask again , total general fixed cost whether always use the low level ? because the question given even use the low or high the FC answer is the same of $55,000 ?
can you please explain what does mean the question not ask for the fixed cost separately ?
thank you
why the below question the correct answers is not to add back produced unit of 180 units of total cost?
(Question Dec 2002)
A company has been reviewing its total cost over the last few periods and has established the following:Period
1
2
3Sales
225 units
150 units
350 unitsTotal cost
$2300
$1500
$2800The company is aware that fixed costs increase by $500 when sales exceed 200 units.
What would be the total cost at a sales level of 180 units?A.$2120 B.$1800 c.$1695 D.$1620 ( correct answer given is D )
my working : for VC – H 350 units – L 150 units = 200 units
and Cost $2800-$500 = $800$800/200 units = $4 per unit
use low level
FC : $1500 – ($4x150units) = $900180units : $900 +($4x180units) = $1620
thank you
I’m sorry, sir, actually my question is to asked why the correct answer is not to add back
$500 set up cost?But wrong to ask:
why the below question the correct answers is not to add back produced unit of 180 units of total cost?? Please ignore.
Thank youYour first question:
It doesn’t matter whether you work from the lower or the higher. The question that Archana typed asked for ‘the total cost for 22,000’. It didn’t ask just for the fixed cost, it wanted the total cost.
Second question:
500 is not added because the step-up is only when sales exceed 200 units.
Here, you are calculating for 180 units so there is no step-up.thank you for the reply.
the first question, there is a step up cost of $5,000 for added
because the level of sales 20,000 units sold is over activity 17,500 units ?my second question , there is step up cost of $500 NOT added
because the level of sales 180 units sold did not over activity 200 units ?
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