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Sir
i don’t understand the logic behind this question
units total costs
1200 23600
800 16400
the fixed costs of the business step up by 40% at 900 units. find variable costs per unit?dIdn’t we assume that FC & VC ARE LINEAR
so no step up costs?
it is from kaplan ques. no 116 page 40thank for your notes & lectures it really helps a lot in understanding topics.
Sir, I wanted to add to this question that how did they assume that 800 and 1200 units altogether will be VC . shouldnt the calculation be as follows:
800 units – 16400
1200 units – 23600
diff – 400 units – 7200
1 unit of VC – 18We assume that the variable cost is linear. The fixed cost is fixed but there can be stepped fixed costs as I do explain in my lectures.
I do not have the Kaplan books (only the BPP Revision Kit).
However, you need to use a bit of simple algebra.
If the variable cost is V per unit, and if the fixed cost is F at levels below 900 units, then:
1,200V + 1.4F = 23,600
and
800V + F = 16,400Solving these two equations together will give you the values for V and for F.
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