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Can anyone help me to solve this question.
Year 2012. 10000 units = $400,000
Year 2013. 20000 units = $660,000
Inflation rates : 10%What is the budget for the year 2014 and the company decides to produce 25000 units. The inflation rate is 8%.
Are you sure year 2013 is $660,000 but not $880,000?
I suppose year 2014 would be $1,188,000 for 25,000 with inflation 8%
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The budget for 2014 should be $831,600
We need to separate Variable and fixed costs here
10V + F=400
20×1.1xV+1.1F=660Assuming the inflation rate 12/13 is 10% and 13/14 is 8%:
If the 2012 results had been achieved in 2013 the cost of the 10,000 units would have been 400,000 x 1.10 = 440,000. Now that inflation is out of the way we can analyse the effect of volume on cost
Moving from 10,000 to 20,000 units increases the costs by 660,000 – 440,000 = 220,000
Therefore the variable cost per unit is 220,000/10,000 = 22 and the fixed cost per unit is 660,000 – 22 x 20,000 = 220,000.
At 2013 costs the planned 2014 output of 25,000 would cost 220,000 + 25,000 x 22 = 770,000.
That has to be inflated by 8%, so $831,600 (as calculated by Jarboshi).
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