It is known that a factory has some fixed and some variable costs.In one month,the output was 12,000 units and the cost £30,000.The following month,output had increased to 15,000 units and the cost was £36,000.
How much are the fixed and variable elements of production?

Question

Quizplus · Accepted Answer

Using the Hi-Lo method, the difference in production is 3,000 units and £6,000. The increased cost is all variable, since fixed costs are unchanged. So this is £2 per unit.If the variable cost is £2 per unit, 12,000 units cost £24,000. But the actual cost is £30,000 meaning there is a £6,000 fixed cost.CHECK: for 15,000 units: £30,000 variable + £6,000 fixed = £36,000.

It Is Known That a Factory Has Some Fixed and Some