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Activity level 800 units 1200 unit
Total cost $16400 $23600The fixed cost of the business step up by 40 % at 900 units
What is variable cost per unit
A : $8.00
B : $18
c : $19.67
d: $20:00sir this is the question about high low method from kaplan practice question i calculate variable cost $18 but answer saying its $8.
is there anything i missing ?Best is to use a bit of simple algebra.
If the variable cost is V per unit and the fixed cost below 900 units is F, then:
For 800 units: 16,400 = 800 V + F
For 1,200 units: 23.600 = 1,200 V + 1.4F (1.4F because the fixed cost is 40% higher)Multiply the first equation throughout by 1.4:
22,960 = 1,120 + 1.4FSubtract each term in this third equation from the second equation:
640 = 80V + 0
Therefore V = 640 / 80 = $8
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