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- This topic has 10 replies, 2 voices, and was last updated 2 years ago by John Moffat.
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- 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 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 ?
August 17, 2021 at 6:40 am #631795Calculate 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 #631851Sir I’m finding it hard to calculate the variable cost per unit
Please thank you sirAugust 18, 2021 at 7:23 am #631897Have you watched the lectures on index numbers and on high-low calculations?
August 18, 2021 at 5:05 pm #631981Yes sir I did watch but this question I do not know how to solve
August 19, 2021 at 7:52 am #632016OK. 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 #632130164 /132 x 3000 =3727.27 units
Is this correct sir
August 19, 2021 at 3:21 pm #632164No 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.
August 19, 2021 at 6:40 pm #632245Sir 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 youAugust 21, 2021 at 8:03 pm #632457Sir I hope 9.986 is correct
August 22, 2021 at 9:41 am #632503The $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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