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  1. avatar says

    plzzz solve dis question 4 me wit explanition,,,,,,im hvng problem selecting the activity which has same fixed cost plzz sme1 explain……….. An organisation has the following total costs at the following activity levels: Activity level (units)16,000,,,,18000,,,,20000,,,,22,000 total costs ($)135,000,,,,140,000,,,,150,000,,,,170,000 Variable cost per unit is constant within this range of activity but there is a step up of $5,000 in the total fixed costs when the activity exceeds 17,500 units.
    What is the total cost at an activity of 20,000 units?
    A
    $155,000
    B
    $158,000
    C
    $160,000
    D
    $163,00

    • Avatar of John Moffat says

      Have you typed the question correctly, because you have listed the total cost at an activity level of 20,000 in the body of the question?

      In general however, look at the difference between the highest and lowest as usual, but if there has been a step up in fixed costs, then 5,000 is due to the step up and the rest of the difference is due to variable costs. Then you can continue as normal – the variable cost per unit is the remaining difference in the total costs divided by the difference in the units.

      • avatar says

        sori 20000 z not there wit cost,,,,,,,in the above case if it was e.g activity lvl: 14,000,,,16,000,,,18,000,,22,000,,,,,cost($)120,000,,,,,135,000,,,140,000,,,170,000,,,,,,,hw wuld u select high low there????perhaps their z a concept of fixed cost which shuld b equal in both high n low,,,,,,,i,m jst confuse in dat,,,im confuse in selection of high low in dis kind of questions………plzz explain……

      • Avatar of John Moffat says

        The highest level of activity is 22,000 and the lowest is 14,000.

        The difference in the costs is 170,000 – 120,000 – 50,000, but 5,000 of this is due to the step-up in fixed costs. The rest of the difference is the extra variable cost of the extra 8,000 units.

        Then you can carry on as normal.

      • avatar says

        Mr.Johnmoffat. zahidkhan2015 requested for a question to be solved and you did that. Its amazing. You are doing really a great and extra ordinary job. Hope I am able to have a face to face meeting with you.We hope to learn more and more from you. God Bless You Sir.

      • Avatar of John Moffat says

        daudzai: Thanks for the comment. We are here to answer questions (although the best place to ask them is in the ‘Ask ACCA tutor’ forums – we cannot always read every comment on every lecture because there are too many, but we always answer questions in the Ask ACCA Tutor forums very quickly) :-)

    • avatar says

      Thank you so much once again Mr. Johnmoffat. I can not stop praising you for what you have doing to the people who want to learn and improve themselves. You are a gift of God for all of us. Though I have not yet formally started my studies but am planning to. I’ll off course resort o ACCA Tutor as you advise that is the right place to ask question and will be quickly answered. I need an advise from your goodself. I want to do FIA (ACCA Diploma). Will it be ok that I buy books and down lecture notes from Opentuition for foundation papers. Read both the books and Opentuition notes, listen to your beautiful and impressive lectures. Will this suffice to go through the examination and pass all the papers or you will advise something otherwise. Thank you once again for your generously extended help. God Bless you.

      • Avatar of John Moffat says

        Thank you again for your comments.

        What you suggest will be sufficient. The book you do need is the Revision or Exam Kit – these contain lots of questions to practice, and that is essential.

      • avatar says

        Well I believe you don’t need to be thankful to anyone of us learning from you instead we, all, should be thankful to you and your team for what you are giving ‘KNOWLEDGE’. You reply is really really motivating and encouraging. As advised I’ll get not only the Revision or Exam Kit but the book as well. Besides, I seek your permission to take a print out of the lecture notes from the great and respectable site of Opentuition. I work for very long hours and then have to give some time to kids as well. Therefore, I would like to seek one more advise and that is how much time do I need to study daily in terms of hours. In addition to that I have another request and that is can I meet you in person, if possible. Thank you very much once again. God Bless you great Teacher.

  2. avatar says

    Hello
    I need some help about the fixed cost definition. I am using the BPP study text. It says:
    “A fixed cost is a cost which tends to be unaffected by increases or decreases in the volume of output” (so far I understand)
    “Fixed costs are a period charge, in that they relate to a span of time; as the span increases, so too will the fixed costs. It is important to understand that FIXED COSTS ALWAYS HAVE A VARIABLE ELEMENT, SINCE AN INCREASE OR DECREASE IN PRODUCTION MAY ALSO BRING ABOUT AN INCREASE OR DECREASE IN FIXED COSTS” (then I am lost)

    I understand that:
    - if we compare a fixed cost with the activity level, it won’t change
    - if we compare a fixed cost with time, it will change

    I don’t understand what I have put in capital letters. It confuses me. Because I thought that if this happens (in capital letters) it might be a stepped cost then.

    • Avatar of John Moffat says

      Assuming that you have quoted them correctly then it is wrong!

      Fixed costs (by definition) do not vary with the level of production. There can be stepped fixed costs, but they are fixed over a certain range. There can be semi-fixed/variable costs, which are part fixed and part variable.

      Which chapter of the BPP Study Text are you quoting this from (because I am surprised that they should write this!!)

  3. Avatar of gahraman says

    Sir, in the last study book of BPP for F-2 there is additional division for direct/indirect costs. For instance direct costs consist of : Direct Material, Direct Labor and 3rd one Direct Expenses. As an example for Direct expenses they show:
    The hire of tools or equipment for a particular job
    Maintenance costs of tools, fixtures and so on.
    It makes things more confusing and it is almost impossible to allocate these costs to cost unit. Could you please, clarify this?

    • Avatar of John Moffat says

      I am not really sure that I understand what your problem is.

      Direct expenses are those expenses that can be allocated or measured directly for a specific job or for a specific cost unit.

      If we are costing a specific job, then hire of tools etc. can be measured directly and would be regarded as direct costs.

      If we were costing units (which is more likely) then hire of tools etc. can not normally be measured for each individual unit and would be treated as indirect expenses.

      • Avatar of gahraman says

        Thank you very much!!
        It seems they just didn’t clearly explain that in such situations Specific Job is considered as cost unit. However it was written here that “Direct expenses are charged to the PRODUCT as part of the prime cost”. Is it possible to cosider the word PRODUCT as specific job?

      • Avatar of John Moffat says

        Usually we are costing individual units and in that case direct expenses are those that can be measured for each unit (for example, royalties payable per unit).
        In some situations you can regard the product as being a specific job, as you write.
        It seems that the text book is a bit confusing :-)

  4. avatar says

    HELP!!!!

    Two budgets are given below:

    Output(units) 1,000 2,000
    Budgeted cost 2,500 3.500

    The total fixed costs estimated for the 2,000 units budget are 20% higher tha the total fixed costs for the 1.000 units budget.

    What is the budgeted variable cost/unit of output?

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