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The following data are records of output levels and overhead cost
January
Hours worked 18000
Total cost dollar 86800
December
Hours worked 21000
Total cost 97438
There was 3 percent inflation between January and December the variable cost per hour worked at January price levels and to the nearest dollar 0.01 isA dollar 4.52
B dollar 2.68
C dollar 3.55D dollar 2.60
Answer
December cost at January price levels equals 97438 dollar divided by 1.03 equals 94600High. Activity level 21000.
Cost dollar 94600
Low. Activity level 18000
Cost dollar 86800
Variable cost per unit at January price level is equal to 7800 divided by 3000 equals dollar 2.60 per unit
Sir I can’t understand what does this mean December cost at January price level and why we are dividing 97438 with 1.03
From where this 1.03 cameThe 1.03 related to the inflation of 3%.
As an example, if you have $1,000 and it inflates by 3%, then you will have 1,000 + 30 = $1,030.
This is the same as taking 1,000 and multiplying by 1.03.
This is explained in my free lecture working through the chapter on interest.
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