high low method

I don't know how you arrived at $2.33. The highest output is 9,600 units, and the lowest is 2,400 units. so the variable cost = (22800 - 9600) / (9600 - 2400) = $1.83 I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.

Hi, can you please help me with this question? Thank you A company has the following costs at 3 activity levels Units $ 5000 180000 8000 240000 11000 276000 The variable cost per unit is constant over this range of activity, but there is a step fixed cost and total fixed costs increase by 20% when the activity level exceeds 7500 units. Estimate the expected total cost when the activity level is 7000 units. I have an answer to this question, but I don't understand the logic.

Because 8,000 and 11,000 units are both above the level at which fixed costs increase, you first use the high low method on these two. This gives a variable cost of $12 per unit, and a fixed cost of $144,000. So at 7,000 units, the variable cost will still be $12 per unit. However the fixed cost above 7,500 units is 20% more than it is below 7,500 units, so is 120% of the fixed cost we need. So the fixed cost at the lower level is 144,000/120% = 120,000.

Sir can you please tell me if the way is calculate the total cost is right in this situation because it always gives the same answer : Variable cost = 276000-240000/11000-8000=12 Fixed cost (I usually take the value before the step up)= 180000-(5000*12)=120000 Total cost for 7000 units= 120000+(7000*12)=204000

That is correct. Why does the fact that it always gives the same answer worry you - there is only one correct answer? And why do you say you usually take the value before the step-up? Here 7,000 is below the step-up and so you are correct to do so. Had they asked for units above the step-up then you would have had to increase the fixed cost.