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Activity level(units) 800 1200
Total cost $ 16,400 23600
The fixed costs of the business step up by 40% at 900 units
calculate variable costs ?
cant understand how to calculate it kindly help
thanksIf the variable cost is V and the fixed cost (before the step-up) is F,
ThenL
800V + F = 16400
and
1200V + 1.4F = 23600. (multiplying F by 1.4 is the same as adding on 40%)Multiply everything in the first equation by 1.4:
1120V + 1.4F = 22960
Subtract everything in this third equation from everything in the second equation:
80V + 0 = 640
Therefore 80V = 640, and V = 640/80 = $8 per unit.
Hi John,
For the above question can you let me know why we have taken 1.4 F at the level 1200?
The question says the step up cost is 40% at 900 units..can u tell me logic behind this?Since the step up occurs at 900 units, the ‘new’ fixed cost will apply for any level above 900 units.
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