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Hello John,
I hope you’re doing well.
Please how do you solve for variable cost per unit in this question:
Activity level 800 units 1200 units
Total cost $16,400 $23,600The fixed costs of the business step up by 40% at 900 units
Also using this same question, how do you solve for Fixed cost at 1100 units?
Thank you
There is more than one way of getting the answer, but the best is to use a bit of simply algebra.
Suppose the variable cost is V per unit, and the fixed cost (at levels below 900 units) is F.
Then at 800 units:
800V + F = 16,400
and at 1,200 units:
1,200V + 1.4F = 23,600
Multiply everything in the first equation by 1.4:
1,120 + 1.4F = 22,960
Subtract each term in this equation from each term in the second equation above:
80V + 0 = 640
Therefore V = 640/80 = $8 per unit.
You can then find F by putting V = 8 in any of the equations.
At 1,100 units, the fixed cost is 1.4F
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