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Hi John,
Can you please help me with this question as the Kaplan revision kit suggest $8 and I am unable to understand the explanation given .Q. Activity level 800 units 1200 units
Total cost $16400 $23600The fixed cost of the business step up by 40% at 900 units.What is the variable cost per unit ?
Regards
BlaivyaYou need to use a bit of simple algebra.
Let the variable cost is V per unit and let the fixed cost be F at levels below 900 units (and so the fixed cost if 1.4F at levels above 900 units).
Therefore at 800 units, then 800V + F = 16,400.
and at 1,200 units, then 1,200V + 1.4F = 23,600Multiply the first equation throughout by 1.4, and you get: 1,120V + 1.4F = 22,960
Subtracting this from the second equation give 80V + 0 = 640
Therefore V = 640/80 = 8 per unit.
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