CIMA BA2 · Chapter 2 · Question 4 of 8
Total production costs were $62,000 when 10,000 units were made and $120,400 when 22,000 units were made. Fixed costs increase by $8,000 when output exceeds 15,000 units. Variable cost per unit is constant. What is the expected total cost of producing 18,000 units?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $103,600
Explanation
Remove the step from the higher-level cost so that both totals contain the same fixed cost: $120,400 - $8,000 = $112,400. Variable cost per unit = ($112,400 - $62,000) / (22,000 - 10,000) = $50,400 / 12,000 = $4.20. Fixed cost above 15,000 units = $120,400 - (22,000 x $4.20) = $28,000. Cost of 18,000 units = $28,000 + (18,000 x $4.20) = $103,600.
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