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.
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60% at 70% at 80%
Direct material 120000 140000 160000
DL 90000 105000 120000
Production OHS 54000 58000 62000
Other overheads 40000 40000 40000
what would the total cost be if flexed at 77 %.
solution
DM cost per 1% 120000/0.6 *1/100 equals 2000
ML cost per 1% 90000/0.6*1/100 equals 1500
other overheads same workings i have got 900. but this different how they came with the calculation of other overheads they named variable overheads.Can you please help me how to arrive the final figure which is 370300.
thank you very much for your help.
You are correct with regard to DM and DL – they are both variable costs because the cost per % stays the same at all three levels.
‘Other overheads’ are clearly fixed because the total is the same at all levels.
Production overheads are semi-variable (we know this because they are obviously not fixed, and they are not wholly variable because the cost per % is different at each level). You therefore need to use the high-low method to calculate how much of the production overheads is fixed, and how much is variable.
If you have forgotten the high-low method then do watch my lectures on it again to remind yourself.
thank you very much I had a go at it again after I read your explanation and got the figure that I was after Many thanks. I appreciate your help.
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