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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 paperAnd 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 $9800The 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 ?
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.
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 🙂
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: $12,176in order to arrive at the variable cost per unit at current prices.
Sir so the variable cost per unit expressed in current years price is
32000-12176/6000-3000= $6.608 per unit
Am I correct
Secondly
If the question had asked the variable cost per unit expressed in the 3 years ago’s price then164/132 x 32000= 39758
So for
6000 units : 39758
3000 units : 9800And v/c expressed in the 3 years ago’s price will be
39758-9800/6000-3000
= 9.986 per unitAm I correct sir
Thank you
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