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The management accountant of a business has identified the following information:
Activity level 800 units 1200units
Total cost $16400 $ 23600The fixed costs of the business step up by 40% at 900 units
What is the variable cost per unit?
A.$8
B.$18
C.$19.67
D.$20i have problem in this question
If the variable cost is V and the fixed cost (before the step-up) is F,
Then:
800V + F = 16400
and
1200V + 1.4F = 23600. (multiplying F by 1.4 is the same as adding on 40%)Multiply everything in the first equation by 1.4:
1120V + 1.4F = 22960
Subtract everything in this third equation from everything in the second equation:
80V + 0 = 640
Therefore 80V = 640, and V = 640/80 = $8 per unit.
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