ICANManagement InformationCost Classification and Behaviour2022

Zenith Manufacturing Plc produces automotive parts. At an output of 10,000 units, total costs are ₦25,000,000, of which fixed costs are ₦10,000,000. What is the total cost at an output of 14,000 units, assuming cost behaviour remains linear within this range?

A₦31,000,000CORRECT
B₦35,000,000
C₦29,000,000
D₦33,000,000
AI
Toaster Teacher
Why the answer is A, and why the others tempt you.
Variable cost per unit = (₦25,000,000 − ₦10,000,000) ÷ 10,000 = ₦1,500. At 14,000 units, variable cost = 14,000 × ₦1,500 = ₦21,000,000. Total cost = ₦21,000,000 + ₦10,000,000 (fixed) = ₦31,000,000. The fixed cost remains unchanged within the relevant range.
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