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Hi,
I am working through Kaplan exam kit and i understand the high/low method but i am unsure on the following:
The Management accountant of a business has identified the following information
Activity level 800 units 1200 Units
Total cost 16400 23600The fixed costs of the business step up by 40% at 900 units
What is the variable cost per unit
A 8.00
B 18.00
C 19.67
D.20.00Please can you help me on how i work this out?
Total cost = Fixed cost + Variable cost
1. 23600 = 1.4FC + 1200VC (High level activity)
1.4FC = 23600 – 1200VC
FC = (23600 – 1200VC)/1.42. 16400 = FC + 800VC (Low level activity)
FC = 16400 – 800VCSimplified equation —–
23600-1200VC/1.4 = 16400-800VC
23600-1200VC = (16400-800VC)*1.423600-1200VC=22960-1120VC
1200VC-1120VC = 23600-22960
80VC = 640
VC = 8
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