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Machine costs
K: $26,000/Production 80,000 units
D: $30,000/Production 80,000 unitsMachine costs are semi variable; the variable element relates to set up cost, which are based upon the number of batches made. K has a fixed cost of $4000 and D a fixed cost of $6000. Whilst both components are currently made in batches of 500, this would need to change, with immediate effect, to batches 400.
-What is the total variable costs of K and D?
-I am having some issue to deal with the batches?In the book, it says
K:($26k – $4k) × 500/400=$27,500.-I am having some difficulties to understand the logic of this calculation. Could you please help.
Thanks.
Although the answer is correct, it is done in a way that makes it look more complicated than it actually is (and I would not do it that way in the exam) 🙂
The total variable cost of K is 26000 – 4000 (fixed) = 22,000
Since the batches are currently of 500 units, there are currently 80,000 / 500 = 160 batches.
So the variable cost = 22,000 / 160 per batchIn future the batches will be of 400 units, so there will be 80,000 / 400 = 200 batches.
So the total variable cost will be 200 x (22,000/160) = $27,500.
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