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Hi john sir, give me guideline on the following question. plz also provide explanation to handle such a question
Output(units) 5000 10,000
Total cost 14000 27000The variable element of total overhead cost is known to increase by $1 per unit at output levels above 7000 units.
What is the variable element of total overhead cost at an activity level of 5000 units?
a. 2.00
b. 2.60
c. 3.20
d.3.60I don’t know where you found this example, but either you have typed it wrong, or the question/answer is printed wrong.
The amount at output of 10,000 includes an extra $1 per unit.
If there was not the extra $1, then the total cost would be $10,000 lower at $17,000If you now do the normal high low, the variable cost per unit (ignoring the extra $1) is (17000 – 14000) / (10000 – 5000) = $0.60.
(And although it is not asked for, the fixed cost is $11,000)
That is not one of the four choices, but it is the correct answer based on the figures that you have typed. (In fact the way the question is worded, the variable element of total overhead cost for 5,000 units is 5,000 x $0.60 = $3,000 !!!!)
Thanx john sir i got it. The question is typed correctly. I was also doing in the same way but i was confused when i did’t find the answer. its mean if question says find the variable cost per unit for an activity level above 7000, that will be 1.6? Thanx john sir.
Hi Sir,
could you please help me with this question:Activity level(units): 8000 12000 15000
total cost: 204000 250000 274000Variable cost is constant and there is a step up of 10% in the total fixed costs when the activity level exceeds 11000 units.
What is the tota cost at an activity level of 10000 units.
A. 220000
B. 224000
C. 227000
D. 234000At activity levels of 12,000 and 15,000 the fixed costs will be the same (because they both exceed 11,000 units).
So use high-low on these two to get the variable cost per unit:
(274000-250000)/(15000-12000) = $8 per unit.10,000 is below the level where fixed costs change, and so is 8,000. So since the variable cost will remain at $8 per unit, the only reason 10,000 will cost more in total than 8,000 is because of the extra variable cost of the extra 2,000 units.
So the total cost for 10,000 is equal to the total cost at 8,000 plus the extra variable cost of (2000 x $8).
So the total is 204,000 + 15,000 = 220,000Hi… I am totally confused on high low please help me out… All I know is that u take highest cost – lowest cost then divide by highest units – lowest units… I can calculate that… But when there is a step up… I always get them wrong…. How do I get variable cost, fixed cost n total cost ? Please help
My answers to the two questions above should sort you out.
One is where there is a step up in fixed costs, and the other is where there is a step up in variable cost.
No, not at all.
The variable cost per unit will be $1.60 and so the total variable cost will be $1.60 x output.
Dear John sir,
Another question about high-low:
this year, output 5000u, cost 3100, price index 164
3y ago, output 2000u,cost 8800, price index 132calculate the variable cost per u expressed in current year price
I can not find the relation within variable cost and price index .
In current year prices, the information 3 years ago will be:
output 2000 units; cost 8800 x 164/132 = $10933
Now you can just use the normal high/low technique.
sir 🙂
can you please continue the answer for the last one ^^
i don’t know how to continue with it 🙁
Actually, although I explained how to deal with the index numbers, Grace must have typed the question wrongly because the cost of 5,000 units is less than the cost for 2,000 units – this is not possible 🙂
So…….at 2,000 units the cost is 10,933 (as I explained before), and at 5,000 units the cost is 31,000
So the variable cost per unit is (31000 – 10933) / (5000 – 2000)
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