Highest no. of units produced= 5100 units
Lowest no. of units produced= 2300
Total cost for the highest no. of units= $11,077
Total cost for the lowest no. of units= $6,709
difference between Highest and lowest cost= 11077-6709=4,368
This difference is mainly because of variable cost that increased with the increase in production.
Difference between highest and lowest units produced= 5100-2300=2800
therefore, for extra 2800 units additonal cost incurred is $4,368
variable cost per unit= 4368/2800=$1.56 per unit.
or using formula, variable cost per unit= (total cost of the highest no.of units- totalcost for the lowest no. of units)/(highest no. of units-lowest no. of units)
now let's determine , fixed cost. for 2300 units
Total cost = $6,709
variable cost= 2300*1.56= $3,588
fixed cost = total cost- variable cost= 6,709-3,588= $3,121
fixed cost should be same for all level of units.
Check,
Total cost for 5100 units= 11,077
variable cost= 5100*1.56= $7,956
fixed cost= 11,077-7,956= $3,121
now let's determine costs for 4,000 units
Fixed cost= $3,121
Variable cost= 4,000*1.56= $6,240
total cost= 3,121+6,240= $9,361
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