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 This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.

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September 3, 2015 at 9:39 pm #269748adrienneellis
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 Replies: 10
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Hello,
Please can you help me understand the logic to the following question:
The management accountant of a business has identified the following information:
Activity Level 800 units 1200 units
Total Cost $16,400 $23,600The fixed costs of the business step up by 40% at 900 units.
Q110. What is the variable cost per unit?
Q111: What is the fixed cost per unit?For Q110 I had answered $18 as I had answered as I would any other high/low question but when checking the answer I can see that the authors had calculated 800*1.5 and from that point onwards I was lost.
Can you please help explain the procedure for answering such a question?
Thank you in advance for your help.
September 4, 2015 at 8:29 am #269792John MoffatKeymaster Topics: 57
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I do not have the Kaplan book, and I am wondering if whether you have typed the question or answer correctly (or whether Kaplan have made a mistake in their answer).
Assuming you have typed the question correctly, then the best way is to use a bit of algebra.
Suppose the variable cost per unit is V, and the total fixed cost at the 800 unit level is F.
Then:
800V + F = 16400
and
1200V + 1.4F = 23600If you multiply everything in the first equation by 1.4, then:
1120V + 1.4F = 22960If you subtract each item in this third equation from each item in the second equation, then:
80V + 0 = 640Therefore the variable cost = V = 640/80 = $8.
Kaplan certainly should not have asked for the fixed cost per unit – that would be stupid unless there was something else in the question that you have not typed.
You can find the total fixed cost at the 800 level but putting V = 8 in the first equation and calculating F.
The total fixed cost at levels of more that 900 will be the value of F multiplied by 1.4.There is no logic at all in them multiplying anything by 1.5, unless the question had said that fixed cost increased by 50% (instead of 40%) which suggests there is a mistake in their answer.
September 4, 2015 at 12:02 pm #269826adrienneellis Topics: 2
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Hi John,
Thank you very much for this clarification! It make sense to me now. Initially, I had worked out the question wrong and when looking at the answer I was even more confused to begin with and thought I had missed something vital.
It seems they have definitely made a mistake in their answer as one part says “1.5” and another says “1.4” for the same equations and I was pondering over it for a good while trying to figure out how they found the figure 1.5. It would be easier to snapshot you a picture as their answer is a lot longer than yours above.
I have found there are quite a few errors in the Kaplan text books so I don’t think I will use them again as this has already wasted unnecessary time.
Your lectures are simple, well explained and incredible and have helped me understand the work in a way the text books cannot. Please continue your great work and I look forward to passing all my exams with OpenTuition.
Thank you again for your help and your quick reply! 🙂
September 4, 2015 at 3:31 pm #269839John MoffatKeymaster Topics: 57
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Thank you for your comments.
There some errors in the Kaplan book, although if you go to their website you should find an errata sheet. (And unfortunately there are also errors in the BPP books as well 🙁 )

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