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Sir kindly help me how to solve this.
The management accountant of a business has identified the following information:
Activity level 800 units 1,200 units
Total cost $16,400 $23,600
The fixed costs of the business step up by 40% at 900 units.
What is the variable cost per unit?
The quickest way to solve this is to use a bit of basic algebra.
Suppose the variable cost per unit is V, and the total fixed cost if below 900 units is F.
Then for 800 units: 800V + F = 16,400
And for 1,200 units: 1,200V + 1.4F = 23,600
(1.4 F is because it is F + 0.4F)
If you multiply the first equation throughout by 1.4, then you get:
1,120V + 1.4F = 22,960
If you subtract each term in this equation from the second equation above, then you get:
80V + 0 = 640
Therefore V = 640/80 = $8 per unit.