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For the below questions my answer is $2.33 per unit.
The following are the total overhead cost for different levels of output:
COST ($) OUTPUT (units)
9600 2400
15000 4800
24000 7200
22800 9600What is the variable cost per unit (to the nearest $0.01) using the high low technique?
How come it becomes 1.83?
Please advise. Thank you.
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 youA company has the following costs at 3 activity levels
Units $
5000 180000
8000 240000
11000 276000The 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)=120000Total 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.
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