- August 16, 2021 at 7:56 pm #631777
Hello dear john Moffat sir
Please guide me on this question sir on calculating the variable cost per unit
It’s a question from a mock paper
And I have no idea how to solve this
This year the output is 6000 units and the overhead cost is $32000.
Three years ago the output was 3000 units and the overhead cost was $9800
The price index was 132 three years ago and and 164 this year .
Using the high low technique . What is the variable cost per unit to the nearest $0.01 expressed in current years prices ?August 17, 2021 at 6:40 am #631795
Calculate what the current costs would be of the 3,000 units produced three years ago (in the way explained in my free lectures on index number).
Then use the normal high low technique using the current costs.August 17, 2021 at 3:29 pm #631851
Sir I’m finding it hard to calculate the variable cost per unit
Please thank you sirAugust 18, 2021 at 7:23 am #631897
Have you watched the lectures on index numbers and on high-low calculations?August 18, 2021 at 5:05 pm #631981
Yes sir I did watch but this question I do not know how to solveAugust 19, 2021 at 7:52 am #632016
OK. Well use the index numbers to get the cost of the 3,000 units at current prices. Tell me what you get and then we will take it from there 🙂August 19, 2021 at 12:56 pm #632130
164 /132 x 3000 =3727.27 units
Is this correct sirAugust 19, 2021 at 3:21 pm #632164
No it is not correct.
It is the cost that would be higher as per the index numbers, not the number of units.
At current prices the cost for 3,000 units would be 164/132 x $9,800 = $12,176
So now you can use the normal high-low method on costs of:
For 6,000 units: $32,000
For 3,000 units: $12,176
in order to arrive at the variable cost per unit at current prices.August 19, 2021 at 6:40 pm #632245
Sir so the variable cost per unit expressed in current years price is
32000-12176/6000-3000= $6.608 per unit
Am I correct
If the question had asked the variable cost per unit expressed in the 3 years ago’s price then
164/132 x 32000= 39758
6000 units : 39758
3000 units : 9800
And v/c expressed in the 3 years ago’s price will be
= 9.986 per unit
Am I correct sir
Thank youAugust 21, 2021 at 8:03 pm #632457
Sir I hope 9.986 is correctAugust 22, 2021 at 9:41 am #632503
The $6.608 is correct.
$9.986 is certainly not correct. How could it be correct given that cost 3 years ago were lower than they are now?
The variable cost expressed in prices 3 years ago is 132/164 x $6.608.
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