How do I take into account the stepped $300000 when finding month 3 forecast?

RRaiyan5y ago

A manufacturer has determined that, due to the need for extra supervision, their fixed costs increase by $30,000 for every 500 units of production. During the last two months it has experienced the following total costs: Production Total costs ($000) Month 1 4,500 6,780 Month 2 4,800 6,960 In Month 3 production is expected to be 5,100 units

C-Cath - CIMA Tutor5y ago#1

Hi there - thanks for posting on this forum! If you can post the answer in future - that helps me to determine if ive fully understood the problem + also you can tell me what you dont follow in the answer They can get more tricky than this ( & maybe ive misunderstood) ... but you'll notice that there is not a 'step' between 4500 and 4800 here... so therefore - you can find high low as normal.... (to give you fixed and variable costs) Then in month 3 the fixed cost value you found from above will add ONE step of $30,000 onto the fixed cost value... The variable cost per unit will stay constant so multiply by 5100 units. Hope this makes sense + let me know if not... ps) More tricky type questions will have a step within the high/low values... ( however, only 300 units movement in the ones above so this isn't a problem here. Many Thanks Cath

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