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  2. Hi. Thank you for clear explanation, I do appreciate it!

    I have a question regarding the 1st question. As one of the activity levels is less than 17,500, and the other one is higher than that, we subtracted 5000 as a step fixed cost from the difference(35000) once only. I wonder do we need to subtract 5000 twice from that difference if both of the activity levels are higher than 17,500?

  3. Dear Sir thank you very much for your lecture, you are the best!!

    I would like you to assist me with question 1 please? I got the the result of 163,00 and I cannot figure out where I did wrong

    22,000 $170,000
    16,000 $135,000
    dif 6000 $35,000 cost p.u. $5.83

    Costo variable= 22,000 x $5.83 = $128,260
    Costo total=$170,000
    Costo fijo=$170,000-$128,260= $41,740

    Now taking into account that production is more than 17,500:
    Costo fijo= $41,740 + $5,000= $46,740
    Costo variable= $5.83 x 20,000= $116,600
    Costo total = $116,600 + $46,740 = $163,340 (163k)

    Could you please tell me where my error was ?

    Thank you again for your time and help

    • The mistake is in the first bit of your workings.
      The difference in cost of 35,000 is not all due to the variable cost – 5,000 is due to the step-up in fixed overheads and therefore only the other 30,000 is due to more variable costs due to more production.
      So the variable cost is 30,000 / (22,000 – 16,000) = $5 per unit.

      (In future please ask questions like this in the F2 Ask the Tutor Forum rather than as a comment on a lecture).

  4. I am very thankful for these lectures, they are really very helpful.
    I couldn’t find the questions u were talking about i am afraid. is it maybe because i am using F2 study text book 2015?

  5. Hello, sorry for being silly but I can’t find answers for the Q7 – Q11 starting from page 20. When I go to the answers of the examples for chapter 4 there is only answer on number 6 (which doesn’t seem to be right either). I’m on page 147. Which page should I be on?
    Thanking you!

  6. First and foremost i want to thank Mr. John for the good he is doing. God bless you, Sir! I am new to this site and for the few times i have listened to the lectures i am so impressed. H aving listened to Chapter 4 of F2, i have these questions:

    1) You said all non manufacturing costs are fixed. Is sales’ man commission not a variable cost?
    2) Example 6 uses the word total cost. Isnt production cost more appropraite? My understanding of prodcution cost is production costs + non production costs.

    • Thank you for your comments.

      1) I have listened to the lecture again, but I cannot find where I say that all non-manufacturing costs are fixed. If I did, then I am sorry – they can be fixed or variable (although it they are variable they will vary with sales rather than with production).

      2) You have a valid point about example 6 (although I think you made a typing error in your last sentence 馃檪 ). However, there is no real definition of the phrase ‘total cost’ – it would usually actually mean the total production cost -and the question could be phrased the same way in the exam. Since the question asks you to use the high-low method it is clear what is wanted. 馃檪

  9. Hi,

    May I know the answer of question 9?

    I think
    1.depreciation of maintenance equipment – Is indirect cost
    2. The overtime premium incurred at the specific request of a customer
    – direct cost
    3. The hire of a tool for a specific job – indirect cost

    Thank you

    • If you look at the contents page of the course notes, you will see that at the end of the notes are the answers to all of the examples, and to all of the test questions!!

      The answer is A.

      (The hire of the tool is a direct cost because it is for a specific job)

      • Thanks so much sir !

        But I am still confused about the third one. I think the hire of a tool is the same as buying a new machine.

        Can we allocate the cost of hiring tools to certain units?

      • Hiring is only like renting and it is being used for a specific job – so it can be allocated to that one job (rather than it being spread over all the work).

  10. I don’t get answer for the question below.Would you please help me to solve it?

    An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a
    time-based rate of pay which is based on $20 per hour for an eight hour working day. Three minutes is the
    standard time allowed per unit of output. Piecework is paid at the rate of $18 per standard hour.
    If an employee produces 200 units in eight hours on a particular day, what is the employee鈥檚 gross pay
    for that day?
    A $128
    B $144
    C $160
    D $180

    • Because the standard time is 3 minutes per unit, the total standard time for 200 units is 200 x 3 / 60 = 100 hours. They are paid 18 per standard hour, which gives a total of 100 x $18 = $180.

      The guaranteed minimum is 8 hours x $20 =
      $160, but this is lower than $180 so the pay is $180.

      Hope that all makes sense 馃檪

      • By the way, 200 X 3/60 comes to 10, not 100 (and 10 x 18 = 180)

        Anyhow, if it’s an 8 hr day, how can he be paid for working 10 hrs?

        thanks?

      • OK – sorry, it was a typing mistake (but the answer is the same).

        The reason he is paid for 10 hours is because he is being paid for piecework – he is being paid according to how many units he manages to produce. He does not work for 10 hours, but because he produces as many units as he does, the time allowed (the standard time) is 10 hours and so this is what they will pay him for.

        It is a very sensible way of paying workers – to tell them that the faster they work (and therefore the more they produce) then the more they will be paid.

  11. i did it another way which i think is less complicated and less time consuming as well.

    i’ve been looking for the variable cost per unit= {(170000-5000)-13000}/22000-160000=$5

    TC= 135,000
    VC= (80,000) =(16000*$5)
    FC= 55,000

    @20000 units= FC+SF+VC
    55,000+ 5,000+(20,000*5) =$160,000 Ans

    we avoid that part of 16000units and 4000unit and with that we need to add the SF its confusing rather work it as a whole. its my point of view but the lecture is very nice. thanks

  13. Hi. I can’t understand the explanations for question one. Why is the extra 5000 deducted from the difference in cost? Is the difference in cost always a fixed cost? When it says exceeds 17500 units, is it in the total or the highest activity level only?

    • As I explained in my answer to your question yesterday, the difference is usually due to the extra variable cost of the extra units – the total fixed costs normally stay fixed (by definition).

      However, in this question there is a stepped fixed cost – the fixed cost increases when the activity is more than 17,500 units.
      Since the higher of the two activity levels (22000) is higher than 17500, the fixed costs must be higher than the fixed costs at the lower level (16000).

      So….since the step up is $5000, then $5000 of the difference is due to the higher fixed costs. The rest of the difference is, as normal, the extra variable cost of the extra units.

    • Just suppose that you make 10,000 units and the variable cost is $5 per unit and the fixed cost is $10,000.
      Then the total cost is (10000 x $5) + $10,000 = $60,000.

      Suppose next month you make 15,000 units. Why should the total cost change? The fixed cost will stay the same, and so the only thing that will change will be the variable cost – an extra $5 for each unit.
      So the total cost would not be (15,000 x $5) + $10,000 = $85,000

      All we are doing with high/low is the same thing backwards.

      The total cost went up by $25,000. The number of units went up by 5,000. Since the only reason for the increase is due to more variable costs, it must mean that $25,000 is the extra variable cost for the extra 5,000 units. So the variable cost per unit is $25,000/5,000 = $5 per unit.

  15. Hi John,

    From the course note in chapter 4, page 17- there got mentioned about the Responsibility centres:
    a) cost centres
    b) profit centres
    c) revenue centres
    d) investment centres

    Why do we need to know about these responsibility centres?

    Thank you.

    • Because it affects the way that we measure the performance of the centre and of the managers.

      (If you want me to answer your question then please in future ask in the Ask the ACCA Tutor Forum for Paper F2)

  16. Kindly help with this question

    A company has obtained the following results from four years of trading:

    Year Volume of Total cost
    production $
    2009 10,000 220,000
    2010 20,000 340.000
    2011 40,000 430,000
    2012 18,000 320,000
    When production volumes are above 30,000 units fixed costs rise by 50%.
    What will predicted costs be at output of (a) 25,000 units (b) 35,000 units?

    I’ve calculated a variable cost of 4 p.u. Fixed cost of 180000 at 25000 units & 270000 at 35000 units. Total cost = 410000 at 35000 units and 280000 at 25000 units. The problem is that if I multiply V.C. of 4 p.u. with 18000 units and add F.C. of 180000 it doesn’t equals the total cost given in the question at 18000 units. Same problem is with 20000 units.
    Please help!

    • If you want an answer from a tutor, then in future please ask in the Ask the ACCA Tutor F2 Forum – not as a comment under the lecture.

      However, I do not know how you managed to calculate a variable cost of $4 per unit.
      First of all use 2009, 2010, and 2012 (because they are all below the 30,000 units).
      For high/low, you take the years with the highest and lowest levels of activity, which are 2009 and 2010. This gives a variable cost of (340,000 – 220,000) / (20,000 – 10,000) = $12 per unit.
      Using this $12, you can calculate the fixed cost as being $100,000 per year (rising to $150,000 for levels of activity about 30,000)

      You can then use this to get a total cost for both 25,000 units and for 35,000 units.

  17. Good afternoon!

    I have a question regarding the variable and fixed costs per unit and I was hoping you could clear it out for me.
    I looked over a table in my text book, where it says that the variable cost per unit is constant when the volume of production increases, and the fixed cost per unit decreases while production increases. I am really confused about this. Shouldn’t the fixed costs be constant regardless of output and variable costs vary accordingly to the volume of production? Thank you!

    • I think maybe you are reading it too fast 馃檪

      The book is correct (and says the same as my lecture).

      Variable costs are fixed per unit – it is the total variable cost that changes with the number of units.

      Fixed costs are fixed in total, but the fixed cost per unit will fall with more units being produced.
      (If the fixed cost is $10000 and you produce 10000 units, then each unit costs $1. If you produce 20000 units, then the total cost stays at $10000 but the cost per unit is then $0.50 )

  18. Hello everyone! Can someone please tell me what does: ” overtime is paid at a rate of time and a quarter” mean? For example: workers are paid $10 per hour and this week they have worked a total of 20 hours overtime: 12 hours on specific orders and 8 hours on general overtime. How do I compute the specific overtime, keeping in mind that ” overtime is paid at a rate of time and a quarter”? Thank you!

    • It means that for every hour of overtime they are paid for 1.25 hours.

      So if they work 12 hours overtime they will be paid for 12 x 1.25 = 15 hours at $10 =
      $ 150

      (Alternatively you can get the same answer by paying the overtime hours at 1.25 x the normal rate. So 1.25 x $10 =
      $12.50.

      12 hours at $12.50 an hour = $150 )

    • Rubbish! Most of the topics in F2 are included in the lectures – and all the more important topics are certainly covered.
      Those that are not in the lectures are covered in the Course Notes for you to read yourself.
      There will not be more lectures.

      • For this examination we will assume that total variable costs vary linearly with the level of
        production (or that the variable cost per unit remains constant). In practice this may not be the
        case, but we will not consider the effect of this until later examinations.I NEED HELP :MEANING.:)

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