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Hi,
In this question the have already given the contribution and net profit percentages and at the same time they have provided for high low method for the fixed and variable cost to be used.
Theses two things seem to be contradicting :
whether we have to use the percentages or we have to follow the high low method
In model answer the high low method was used ,
So why then they provided the percentages,
can you please clarify this point,
Thanks,
This question is about ……. Do you understand costing?
Relevant costs and cost behaviourIt states quite clearly that
An analysis of costs shows that
10,000 equals $130,000
14,000 equals $150,000
a change of 4000 equals $20,000 so VC is 5 and fc is $70,000
This is to test that you understand cost behaviourThen they put in a stepped increase (%) in fc so with the volume it will be $80,000 & $120,000
To test your ability at understanding step increasesThey also put relevant cost checks in the question to see if you understand these.
Hi,
What I am confused with is the percentage of the contribution and net profit why they were given
but I think there were target percentages only,
Thanks,
The percentages are not used directly in the calculation of costs, but rather as a reference for determining the level of profitability.
The high-low method is a more accurate way of determining costs, while the percentages provide information on the profitability of the business. So, both the high-low method and the percentages serve different purposes in the question.
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