CIMA BA2 · Chapter 2 · Question 8 of 8
The average cost per unit of a service was $9.00 when 5,000 units were provided and $7.50 when 8,000 units were provided. Assuming linear cost behaviour, what is the fixed cost per period?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $20,000
Explanation
Convert the unit costs into totals: 5,000 x $9.00 = $45,000 and 8,000 x $7.50 = $60,000. Variable cost per unit = ($60,000 - $45,000) / (8,000 - 5,000) = $5.00. Fixed cost = $45,000 - (5,000 x $5.00) = $20,000. The cost is semi-variable.
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