Question

Lexxx LTD had the following costs over the last 2 months:

	January Production = 5,000 units	February Production = 20,000 units
Cost A	$ 50,000	$ 50,000
Cost B	$ 20,000	$ 80,000
Cost C	$ 50,000	$ 125,000
Cost D	$150,000	$600,000

If we expected production in March to be 15,000 units, what we expect the total of Cost A, B, C, and D to be?

Answer 1

Since cost A is same at both the levels of production, hence cost A is a fixed cost.

Variable cost per unit (Cost B) = Change in cost/ Change in output

= (80,000-20,000)/(20,000-5,000)

= 60,000/15,000

= $4

Variable cost per unit (Cost C) = Change in cost/ Change in output

= (125,000-50,000)/(20,000-5,000)

= 75,000/15,000

= $5

Total variable cost for 5,000 units (Cost C) = 5,000 x 5

= $25,000

Total cost for 5,000 units (Cost C) = $50,000

Total fixed cost (Cost C) = Total cost for 5,000 units (Cost C) - Total variable cost for 5,000 units (Cost C)

= 50,000-25,000

= $25,000

Variable cost per unit (Cost D) = Change in cost/ Change in output

= (600,000-150,000)/(20,000-5,000)

= 450,000/15,000

= $30

Production 15,000 units
Cost A	50,000
Cost B (15,000 x 4)	60,000
Cost C (25,000+ 15,000 x 5)	100,000
Cost D (15,000 x 30)	450,000
Total cost	$660,000