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Hi….
Please help me with this questionActivity level. 800units 1200units
Total cost. 16,400 23,600The fixed costs of the business step up by 40% at 900 units.
What is variable cost per unit ?
Best is to use a bit of basic algebra.
If the variable cost per unit is V, and the fixed cost for below 900 units is F, then:
800V + F = 16,400 (equation 1)
and
1,200V + 1.4F = 23,600 (equation 2)You then have two equations and you should have learned how to solve them together at school. There are several ways of doing it, but the way I find the easiest is as follows:
Multiply everything in the first equation by 1.4. This gives:
1.4 x 800V + 1.4F = 1.4 x 16,400
which is: 1,120V + 1.4F = 22,960 (equation 3)The reason for doing this is that equation 1 and equation 3, both have 1.4F in them.
So if you subtract equation 3 from equation 2 you get the following:80V + 0 = 640
Therefore V = 640/80 = 8.
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