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Good day tutor while studying i came across this and i need your clarification
An organisation has the following total costs at two activity levels:
Activity level (units) 8,000 13,000
Total costs (£) 22,000 31,000
Fixed costs are constant in this range of activity and variable cost per unit
decreases by £1.5 per unit when activity exceeds 12,000 units.
Required:
What is the total cost at an activity level of 16,000 units?after i solved this (multiplied the £1.5 by 1000 diffrence btwn high LOFA and exceeding point. then i added the 1500 to high total cost) then i arrived at a fixed cost of £5200 but confused about calculating the Total cost
There must be an answer in the same book in which you found the question!
You should use this forum to ask about whatever it is in the answers that you are not clear about.The difference between the two costs is $9,000 so this is the extra variable cost.
However, the variable cost is lower at 13,000 units by $1.50 per unit. So if the variable cost was not lower, the difference would be higher by 13,000 X $1.50 = $19,500, and therefore be $50,500.So the variable cost per unit at the lower level = (50,500 – 22,000) / ( 13,000 – 8,000)
Now you should be able to finish the question 🙂
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