Question
In: Accounting
Units Per unit cost Total cost 5,000 units 5000 17.00 85000 7,500 units 7500 13.00 97500...
| Units | Per unit cost | Total cost | |
| 5,000 units | 5000 | 17.00 | 85000 |
| 7,500 units | 7500 | 13.00 | 97500 |
| Difference | 2500 | 12500 | |
| Unit variable cost | 5 | =12500/2500 | |
| Fixed cost | 60000 | =85000-(5000*5) | |
| Y = $60,000 + $5X |
what is that X suppose to mean ?is the answer 60,005?
Solutions
Expert Solution
CALCULATION OF FIXED COST AND VARIABLE COST:
| TOTAL COST = FIXED COST + VARIABLE COST |
| VARIABLE COST PER UNIT = CHANGES IN TOTAL COST / CHANGES IN UNITS |
STEP 1- VARIABLE COST:
Variable cost per unit = ($97500 - $85000) / (7500 - 5000)
= $12500 / 2500
| Variable cost per unit = $5 per unit |
STEP 2- FIXED COST:
| Equation: Y = a + bX |
Total cost = Fixed cost + Units * variable cost per unit
|
Y = Total cost a = Fixed cost b = units X = Variable cost per unit |
Y = $85000
a = Fixed cost
b = 5000 Units
X = $5 per unit
| Y = a + bX |
Therefore, $85000 = Fixed cost + 5000 units * $5 per unit
$85000 = Fixed cost + $25000
| Fixed cost = $85000 - $25000 = $60000 |
Check:
Substitute in equation Y = a + bX, You will get Total cost of $85000
Y = $60000 + 5000 units * $5 per unit
Y = $60000 + $25000
Therefore, Total Cost = $85000
Alternatively, Fixed cost and variable cost can also be computed with 7500 units
Y = a + bX
$97500 = Fixed cost + 7500 units * $5 per unit
$97500 = Fixed cost + $37500
| Fixed cost = $97500 - $37500 = $60000 |
Check:
Total cost = $60000 + 7500 units * $5 per unit
Total Cost = $60000 + $37500
| Total Cost = $97500 |
Note:
1. Variable cost is constant per unit and varies in total.
2. Fixed cost is constant in total and varies in per unit.
All the best...
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