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Acca F2 Question doubt

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Acca F2 Question doubt

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • December 28, 2021 at 1:23 pm #644952
    simrasiddiqui
    Participant
    • Topics: 2
    • Replies: 0
    • ☆

    I have a doubt in a question regarding the high low method.
    The question is
    An organisation has the following total costs at 3 activity levels:
    Activity Level (units) 4,000 6,000 7,500
    Total Cost $40,800 $50,000 $54,800
    Variable cost per unit is constant within this activity range and there is a step up of 10% in the total fixed costs when the activity level exceeds 5,500 units.
    What is the total cost at an activity level of 5,000 units?
    I wanted to know how to calculate the 10% step up cost from total fixed cost.

    December 28, 2021 at 5:09 pm #644962
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51552
    • ☆☆☆☆☆

    Best is to use a bit of simple algebra.

    If the variable cost is V per unit, and if the fixed cost at levels below 5,500 units is F, then:

    4,000V + F = 50,000
    and
    7,500V + 1.1F = 54,800. (1.1F is the same as F + 0.1F)

    If you solve the two equations you can get values for V and for F.

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