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Fixed cost

mvenazzimvenazzi Registered Posts: 2
Hi Guys,

I was wondering if someone would please help me solving the following exercise:

I am given 3000 Units (minimum level of output) with Total Costs of £41000 and 11000 Units (maximum level of output) with Total Costs of £105000. I have therefore to find out fixed costs and variable costs for each. I also have to find fixed costs, variable costs and total costs for 5000 and 7500 units. However I am not given any extra information so I am not sure how to calculate fixed costs?

*This exercise is from the AAT Study Support Search - Foundation Synoptic - Practice CBT 2 - Exercise 6

Thank you for your help.

Comments

  • KoopaCooperKoopaCooper London, UKMAAT, AATQB Posts: 225
    Okay, well you've been given two points on a straight line. From that, you can work out the slope of the line on a graph.

    Variable cost (i.e. slope of the line) = (Change in £) / (Change in units)

    = (£105000 - £41000) / (11000 units - 3000 units)
    = £64000 / 8000 units
    = £8 per unit

    You can then use this to calculate the fixed cost, which is also the y-intercept of the line on a graph.

    Fixed cost = Total cost - ((# of units)*(£/unit))

    = £41000 - (3000 units * £8/unit)
    = £41000 - £24000
    = £17000

    or if you use the other set of data you were given

    = £105000 - (11000 units * £8/unit)
    = £105000 - £88000
    = £17000

    Now you have your fixed cost and variable cost for your item, you can plug them back in to get variable costs and total costs for any level of activity you desire. Fixed costs will of course always be the same for any level of activity. :)

    Good luck!
    Accounts Executive, ғɪᴀʙ ᴍᴀᴀᴛ
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    mvenazzi
  • mvenazzimvenazzi Registered Posts: 2
    Thank you very much for your help KoopaCooper! :)
    KoopaCooper
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