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Hi,
Could anyone help me out for this question?
An organisation manufactures a single product. The total cost of making 4,000 units is £20,000 and the total cost of making 20,000 units is £40,000. Within this range of activity the total fixed costs remain unchanged.
What is the variable cost per unit of the product?
A £0·80
B £1·20
C £1·25
D £2·00Many thanks!!!
Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers – they contain answers and applications.
This question is nothing to do with breakeven analysis but is simple application of the high/low technique from Paper MA (which is explained in detail in our free Paper MA lectures).
The extra cost of making an extra 16,000 units is an extra $20,000. Given that the fixed cost remains the same, this extra $20,000 must be the extra variable cost of making an extra 16,000 units. Therefore the variable cost per unit must be $20,000/16,000 = $1.25
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