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John Moffat.
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rarechel
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Hi, I had a question to stepped fixed costs
The question is the following data has been collected from Steps Co:
Unit produced 5000 7500 10000
Total costs 54500 76500 90000Total costs are made up of two elements, a stepped fixed cost that changes when the units exceed 7000 and some variable costs which remain constant
According to the answers provided for variables cost per unit is 13500/2500 May I know where did the13500 get? Thank you in advance
John Moffat
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Although usually we take the highest and the lowest, in this case we take the highest and lowest of those with the higher fixed cost (i.e. 7,500 units and 10,000 units, because they are the two where the number of units exceeds 7,000 and so these two both have the same total fixed cost).
Using just these two gives a variable cost per unit of (90,000 – 76,500) / (10,000 – 7,500).
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