Question

1. Mateo Company's average cost per unit is $1.425 at the 16,000-unit level of activity and $1.38 at the 20,000-unit level of activity. Note: you need to calculate a total cost Assume that all of the activity levels mentioned in this problem are within the relevant range. Required: Predict the following items for Mateo Company: a) Variable cost per unit. (2 marks) b) Total fixed cost per period. (2 marks) c) Total expected costs at the 18,000-unit level of activity. (2 marks)

Answer 1

1) Variable cost per unit: $1.20 per unit

Working:

	Cost	Units
High level of activity (20,000 units * $1.38)	27,600	20,000
Low level of activity (16,000 units * $1.425)	22,800	16,000
Change	4,800	4,000

$4800 / 4000 units = $1.20

2) Fixed cost: $3,600

Working:

Total cost at the high level	27,600
Minus: Variable cost (20,000 units * $1.20)	24,000
Fixed cost	3,600

3) Solution: $25,200

Variable cost (18,000 units * $1.20)	21,600
Fixed cost	3,600
Total cost	25,200

Answer 2

Fixed cost