ACCA MA · Guided practice (Show me how)
Chapter 4: Cost Classification and Behaviour
High-low: splitting a semi-variable cost
A business records the total cost of running its packing department at two different levels of output. Nothing else about the department changed between the two levels.
At an output of 200 units the total cost was $30,000. At an output of 1,000 units the total cost was $110,000.
The cost behaves as a semi-variable cost: one part of it is the same whatever the output, and the rest varies in direct proportion to output.
(a) The high-low working
Calculate the variable cost per unit and the fixed cost of the packing department, using the high-low method.
(b) Using the cost equation
State the total cost of the packing department as a linear equation of output, and calculate the total cost at an output of 700 units.
Opening this exercise…