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HELLO SIR .,HOPE YOU R DOING GREAT.
Output level (units)5,000
10,000
Total overhead cost ($)
14,000
27,000
The variable element of total overhead cost is known to increase by $1 per unit at output levels above 7,000 units.
What is the variable element of total overhead cost at an output level of 5,000
Ans 2 dollar per unitSir 2 dollar is calculated as 27000-14000-3000*1$/10000-5000 so the ans is 2 dollar my doubt is
Why are we not adding the further 1 dollar increase,PLZ explain ur help will be appreciated.The increase in the total cost (13,000) is due to the extra variable cost of the extra 5,000 units.
However, because 10,000 units is 3,000 more than 7,000 units, the variable cost is higher that it normally would have been by $3,000 because those 3,000 units all have an extra variable cost of $1 per unit.
If the variable cost per unit had not increased then the extra variable cost would only. be 13,000 – 3,000 = $10,000 and so the variable cost per unit is $2.
$2 is the variable cost without the $1 increase, but the question asks what the variable cost is at an output of 5,000 units, and for 5,000 units the cost doesn’t increase. (It only goes up to $3 per per unit for levels above 7,000 units).
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Why did you less $3000 ?
For the reason I explained in my previous post!!
Because the variable cost increases by $1 per unit for levels about 7,000, then the total variable cost for 10,000 will included an extra $3,000 for the 3,000 units. If the variable cost had not increased then the total cost of 10,000 units would be $3,000 lower.
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