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Hi There
Have question about budgeting and its from BPP revision Kit from chapter 30 question 5. It give us data from 5 different periods and asked us to tell the vairable element of the costs. But instead of using period of highest activity, in the answer it takes the cost of period 4 ( which is last period in the set of data) and period 1 ( the first period in data).
So i am a bit confused as if to why is that used instead of highest level of activity period which in the question it is period 3Thanks
I am sorry, but I do not have the BPP Revision Kit.
However, on the information you have written, it does sound as though they have made a mistake. They should be using the highest and lowest activity levels.
A company, which manufactures a range of products, has decided to introduce a product costing
system. As a first step it wishes to analyse the behaviour of its costs.
The following data is available for the previous four periods.
A B C D E
1 Period 1 Period 2 Period 3 Period 4
2 Total costs ($) 214,559 239,970 243,183 259,541
3 Total output 64,200 79,350 86,170 85,620
(a) Using the high-low method, which ONE of the following formulae will correctly calculate the cost
of the variable element per unit?
A =E2-B2/E3-B3
B =(D2-B2)/(D3-B3)
C =(E2-B2)/(E3-B3)
D =D2-B2/D3-B3 (2 marks)
(b) Using the high-low method, establish a linear function of the form:
y = a + bx
to represent total costs. (4 marks)
(c) Using the linear function established in (b) above, estimate costs in the following period (Period
5) when output is expected to be 87,500 units. (2 marks)
(d) Briefly explain ONE limitation of the method used in part (c). (2 marks)
(Total = 10 marks)This was the question i was referring to and thanks again
It is difficult for me to follow the cell references on here, but they should definitely have used the figures for period 3 and period 1.
(It looks to me that the answer is therefore B, but you can check the cells better yourself)
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