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Hello sir,
A really simple yet really confusing question for me.
The table shows costs at three activity levels.
i) 65 units: FC ? VC ? TC= 15600
ii)90 units: FC ? VC? TC= 19600
iii) 100 units: FC ? VC? TC = 21200What is the fixed cost?
A) $1600
B) $4000
C)$5200
D)$5600This is simply using the high-low method from Paper F2 (and you can find lectures on it in the lectures that go with chapter 17 of the Paper F2 free lecture notes).
The variable cost = (21200 – 15600) / (100 – 65) = $160 per unit.
Substituting for 100 units, the total cost is 21,200. The variable cost is 100 x 160 = 16000
Therefore the fixed cost is 21200 – 16000 = $5,200
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