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Activity level 800 units with total cost of $16,400 and 1,200 units with total cost of $23,600. The fixed cost of the business step up by 40% at 900 units. What is the variable cost per unit?
Please do not simply set me a test!!
Presumably the book in which you found the question also has an answer – so in future ask me about what you don’t understand in the answer and then I will try and help.
There are several ways you can get the answer to this. Probably the easiest is to write the equations. If V is the variable cost per unit, and F is the fixed cost, then:
800V + F = 16400; and
1200V + 1.4F = 23600If you multiply the first equation by 1.4, then 1120V + 1.4F = 22960
Subtract this equation from the second equation:
80V = 640
V = $8Hi
Apologies, I am fine up to $640 but I do not understand where the 80 comes from. Please explain.
Many thanksIf you subtract the equation: 1120V + 1.4F = 22960
from the equation: 1200V + 1.4F = 23600Then 1200V – 1120V = 80V; and 23600 – 22960 = 640
Hi
Of course. Thank you. I cannot believe I did not subtract the whole equation, just the total. This is now etched in my brain.
Many thanksSorry that you thought I set u a test,I asked because the book am using has a wrong answer and there was too much workings I couldn’t understand.thanks so much for your clear workings
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