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he following information relates to the manufacture of Product LL in 20X8:
Illustration – High low with variable cost changes
output total cost
200 7000
300 8000
400 8600For output volumes above 350 units the variable cost per unit falls by 10%. (Note: this fall applies to all units – not just the excess above 350).
Estimate the cost of producing 450 units of Product LL in 20X9.
can anybody explain this question?
When you ask in this forum, ‘anybody’ will always be me, because I am the tutor for F2 🙂
Given that outputs of 200 and 300 units are both below the 350 units where things change, you use the normal high-low method (as I explain in my free lectures) on these two to get a variable cost of $10 per unit. and a fixed cost of $5,000.
For 450 units, the variable cost will be 10% lower at $9 per unit and the fixed cost will remain at $5,000.
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