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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 6,960In Month 3 production is expected to be 5,100 units
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 answerThey 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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