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John Moffat.
John Moffat.-
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dishamehta1620
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The following observations of output and cost have been made:
Output Cost
Units $
8,000 39,400
20,000 68,000
It is known that at output levels above 15,000 units, variable cost per unit drops by $1 per unit for all
subsequent units produced.
What is the variable cost for each unit of output above 15,000 units?Hello professor, how to do this sum?
dishamehta1620
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The following shows the total overhead costs for given levels of a company’s total output.
Cost Output
$ Units
4,000 1,000
7,000 2,000
10,000 3,000
9,500 4,000
A step up in fixed costs of $500 occurs at an output level of 3,500 units.
What would be the variable overhead cost per unit (to the nearest $0.01) using the high-low technique?Also i am quite confused with this sum too.
please help sir!!
John Moffat
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For the second question the difference in cost between the highest and lowest levels of output is $5,500.
$500 of this is due to the increase in the fixed costs, so only the remaining $5,000 is due to the variable cost.
So the variable cost per unit is 5,000 / 3,000 = $1.67 per unit
John Moffat
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For the first question, if the variable cost per unit for 8,000 units was the same as for 20,000 units, then the total cost for 8,000 units would be 39,400 – (8,000 x $1) = $31,400.
Using the normal high low approach on costs of 31,400 and 68,000 will then give you the variable cost per unit at the higher level.
dishamehta1620
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sir in the second question there’s a step up in fixed COST so sir, why do we subtract it from output? very confused sir in the high low method.
John Moffat
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I did not subtract it from output!!
The total cost at each level of output is the total of the variable cost and the fixed cost.
If there was no step-up in the fixed cost then the difference in the two costs would be just the total variable cost of the extra units.
Since there is a step-up of $500 then this is the reason for $500 of the difference in the two costs so only the rest of the difference is the total variable cost of the extra units.
dishamehta1620
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