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Qn
This yr, the output is 5000 units and the overhead cost is £31000
3 yrs ago, the ouput was 2000 units and the overhead cost was £8800
The price index was 132 three yrs ago and is 164 this yr.Using the high- low method, what is the variable cost per unit expressed in current yr prices?
Answer is £6.69
WHAT I’VE DONE:
(31000+8800) / (7000+2000) = £6.68
Index – 164 / 132 = 1.24
1.24 + 6.68 = …. WRONG ANSWER 🙁THANK YOU IN ADVANCE
You have made two mistakes.
First you need to restate the cost 3 years ago in current year prices.
So 8,800 x 164/132 = 10933Then you use high/low as normal: (31000-10933) / (5,000 – 2,000) = $6.69
(you have put +’s instead of -‘s, and for some reason you have put 7,000 instead of 5,000)
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