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I’ve been through all lectures and have revisited f2 but can’t find how to calculate a step up in high low method.
Would you direct me to the correct place where I would find this or explain at what point do I deduct the step up cost of extra fixed costs. If that makes senseAlso I need to work out a 40% step up cost.
The question is
Activity levels and costs are
800 units £16400
1200 units £23600Fixed costs of business are 40% at 900 units.
I need work out
A) the variable costs per unit
B) fixed costs at 1100First question:
If the step up in fixed cost is given in $’s, then it is easy. You just subtract the amount of the set-up from the difference in the two total costs. What is left is the extra variable cost of the extra units and then you can carry on as normal.
Second question:
Because here the step up is given as a % (which is much less likely in the exam) then you have no choice but to use some basic algebra.
If V is the variable cost, and if F is the fixed cost (before the step up).
Then at the lower level:800V + F = 16,400
At the higher level:
1,200V + 1.4F = 23,600 (Multiplying F by 1.4 is the same as adding on 40%)
Multiply everything in the first equation by 1.4:
1,120V + 1.4F = 22,960
Subtract everything in the third equation from everything in the second equation:
80V + 0 = 640
Therefore 80V = 640, and V = 640/80 = $8 per unit.
You should now be able to finish it by yourself 🙂
OK I’m never gonna remember that for next week.
but I think I get the logic behind the calculations so should be able to work it out.Thank you so much for your time in writing out the whole thought process behind the answers.
Much appreciated
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