At a sales volume of 40,000 units, Lonnie Company's total fixed costs are £40,000 and total variable costs are £60,000.
The relevant range is 30,000 to 50,000 units.
-If Lonnie were to sell 50,000 units, the total expected cost per unit would be:
A)£2.20.
B)£2.30.
C)£2.50.
D)£2.00.

Question

Quizplus · Accepted Answer

The total cost at 40,000 units can be calculated using the formula:
Total Cost = Total Fixed Cost + Total Variable Cost
Total Cost = £40,000 + £60,000
Total Cost = £100,000

Using the high-low method, we can find the variable cost per unit:
Variable Cost per Unit = (Total Variable Cost at high level - Total Variable Cost at low level) / (High level of activity - Low level of activity)
Variable Cost per Unit = (£60,000 - £40,000) / (50,000 - 30,000)
Variable Cost per Unit = £1

Therefore, the total expected cost per unit at 50,000 units can be calculated using the formula:
Total Expected Cost per Unit = Total Cost at 50,000 units / 50,000 units
Total Expected Cost per Unit = (Total Fixed Cost + Total Variable Cost at 50,000 units) / 50,000 units
Total Expected Cost per Unit = (£40,000 + (50,000 x £1)) / 50,000 units
Total Expected Cost per Unit = £0.80 + £1
Total Expected Cost per Unit = £2.30

Hence, the best choice is B, which is £2.30 per unit.

At a Sales Volume of 40,000 Units, Lonnie Company's Total