Answer:
Total fixed costs were $265,000 with total variable costs of $180,000. Based on this information, complete this chart.
500 clients 800 clients 900 clients
Fixed costs 265,000(W1) 265000 265000
ADD. Variable costs 180,000(W2) 288,000(W3) 324,000(W4)
Total costs $445,000 $553,000 $589,000
500 clients 800 clients 900 clients
Fixed cost per client $530(W5) $331.25(W6) $294.44(W7)
ADD. Variable cost per client $360(W8) $360 $360
Total cost per client $890 $691.25 $654.44
Explanation:
This question relates to cost behaviour in which we study the changes in types of costs with the changes in activity level. In this question there are three level of activity that is 500, 800 and 900 clients.
Working 1: Remember that Fixed cost remains fixed for all level of activities unless it is stepped fixed cost. As there is no data relevant to stepped Fixed cost we must assume that it is fixed cost only.
Working 2: The variable cost for 500 clients is $265000, which is given in the question.
Working 3: Using unitary method for 800 clients, the total variable cost will be:
$180,000/500 clients=$360 per clients * activity level
activity level is 800 clients
so this emplies
Total variable cost= $360 per clients *800 clients=$288,000
Similarly we will solve Working 4. Key point here is variable cost per unit remains constant for every level of activity. Here variable cost per unit is $360.
Working 5: Now we have to compute fixed cost per unit. Remember Fixed cost per unit decreases with the increase in the level of activity.
For 500 clients:
Fixed cost per unit=265000/500=530
similarly we will solve Working 6 and 7.
Working 8: This has been computed in the working 3.
