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Dear Sir,
Please assist me with the below.
Three activity levels and total costs of an organisation are : $204,000 at 8,000 units ; $250,000 at 12,000 units and $274,000 at 15,000 units.
Variable cost per unit is constant. There is a step up of 10% in total fixed costs when activity level exceeds 11,000 units.
What is the total cost of an activity level of 10,000 units?Looking forward to your response. Thanks in advance.
Use high low on 12,000 and 15,000 units (because they will both have the same fixed cost) and calculate the variable cost per unit.
Then to get the total cost for 10,000 units, take the cost for 8,000 units and add on the variable cost of an additional 2,000 units (because the fixed cost for both 8,000 and 10,000 units will be the same)
Thank you sir. This is exactly where my confusion was – I was using the highest and lowest activity level to get the variable cost. Thanks for the help! Much appreciated 🙂
thus the answer will be 220000?
Calculated as:
Cost for 8000units. 204 000
VariableCosts 2000x$8. 16000
Total. 220000is this correct?
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