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Chapter 9
Example 1
Output (units) Total costs
200 $7,000
300 $8,000
400 $9,000
(a) Find the variable cost per unit:
Cost at high level of activity – Cost at low level activity
Variable cost/unit =
High level activity – Low level activity
Variable cost /unit = ($9,000 – $7,000)/(400 – 200)
Variable cost per unit = $10 per unit
(b) Find the total fixed cost
Using high activity level:
Total cost = $9,000
Total variable cost = 400 × $10 = $4,000
Therefore fixed costs = $5,000
(c) Estimate the total cost if output is 350 units
Variable cost = 350 × $10 = $3,500
Fixed costs = $5,000
Total cost = $8,500
(d) Estimate the total cost if output is 600 units
Variable cost = 600 × $10 = $6,000
Fixed costs = $5,000
Total cost = $11,000
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