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Got really confused as what was going on , also wonder if my calculator is Ok
Q
Activity levels 16000 2200
Total Costs 135000 170 000once production reaches 17000 a cost of 5000 is applied
Calculate the Total cost at 20000 unitsWhat I did and where I got confused
Worked out the Variable cost
22000 170000
-16000 – 135000
=6000 =3500035000/6000 =5.83 ( Should I have rounded down?)
Finding the Fixed Costs 16000 x 5.83 = £ 93,280
22000 x 5.83 £128 260Fixed costs =
The change in the total cost is 35,000.
However 5,000 of this is due to the fact that the fixed costs are higher for 22,000 units than for 16,000 units.
Therefore only 30,000 is the change in the total variable cost and the variable cost per unit is 30,000 / (22,000 – 16,000) = $5 per unit.
You should then have no problem calculating the fixed cost, which is $55,000 for production of less than 17,500 and $60,000 for production of more than 17,500.
(If you click on ‘submit’ after completing the test, and then click on ‘review quiz’, the answer and workings appear for each of the questions.)
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