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Hi-low method

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Hi-low method

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by John Moffat.
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  • Author
    Posts
  • October 10, 2019 at 6:46 pm #548693
    aahid
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    An organization as the following cost at three
    activity levels
    Output cost
    4000 40 800
    6000 50 000
    7500 54 800
    Variable cost per unit concerned with this activity range
    There’s a setup of 10% increase in total fixed cost when the activity level exited 5500 unit
    *what is the total cost at on activity level 5000 units?

    October 11, 2019 at 7:51 am #548726
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54701
    • ☆☆☆☆☆

    Please do not simply type out test questions and expect to be provided with an answer. You must have an answer in the same book in which you found the question, so in future ask about whatever it is in the answer that you are not clear about and then I will explain.

    The difference between 6,000 and 7,500 units is $4.800. Therefore the variable cost per unit is 4,800/1,500 = $3.20 per unit, and the fixed cost is 50,000 – (6,000 x $3.20) = $30,800.
    However this is the fixed cost for more than 5,500 units, and therefore the fixed cost when less than 5,500 units is 100/110 x $30,800 = $28,000.

    Therefore the total cost for 5,000 units = (5,000 x $3.20) + $28,000 = $44,000.

    Or, you can get it even quicker by saying that at 4,000 units the total cost is $40,800. For 5,000 units the fixed cost will be the same and so the only extra cost will be the variable cost of the extra 1,000 units. So the total cost = 40,800 + (1,000 x $3.20) = $44,000.

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