January February March Total Costs $240,000 546,000 700,000 Units Produced 10,000 units 26,000 30,000 Highest Cost Less: Lowest Cost Difference in Cost 700,000 240,000 460,000 Correct Highest Units Less: Lowest units Difference in Units 30,000 10,000 20,000 Correct Variable Cost per Unit Difference in Cost Difference in Units $ 460,000 20,000 23.00 Correct Now that we have determined the Variable Costs (VC) per unit, how does that help us? Well, we know that total costs consist of Fixed Costs (FC) and (VC per unit x # of units), right? Let's put this theory to test as we know both the total cost and VC per unit. This should help us determine the Fixed Costs. We should, theoritically, end up with the same fixed costs at any level of production, if they really are FIXED costs. Analysis @ Highest level of Cost Total Cost (at the highest level of cost) Less: Variable Cost (Variable Cost per Unit (from above) X No. of Units) = Fixed Cost n/a Analysis @ Low Cost Total Cost (at the lowest level of cost) Less: Variable Cost (Variable Cost per Unit X No. of Units) = Fixed Cost n/a Determine the estimated Total Costs if 40,000 units are produced Units = 40,000 Fixed Cost Less: Variable Cost (Variable Cost per Unit X No. of Units) Total Cost n/a Determine the estimated Total Costs if 5,000 units are produced Units = 5,000 Fixed Cost Less: Variable Cost (Variable Cost per Unit X No. of Units) = Total Cost n/a