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high-low method

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

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • March 31, 2021 at 7:40 pm #615624
    Muslimov
    • Topics: 2
    • Replies: 0
    • ☆

    The following data relate to the number of units produced and their corresponding total costs
    incurred.
    Units produced Total costs incurred
    30.000 $230.000
    39.000 $276.000
    45.000 $302.500
    59.000 $365.500
    If the production level exceeds 40.000 units, fixed costs increase by 25% while variable cost per
    unit decreases by 10%. Using the High – Low method; calculate the total costs if 47.000 units
    are produced.
    A. $316.366
    B. $311.980
    C. $311.500
    D. $309.460
    Can you help me to solve this problem

    April 1, 2021 at 8:57 am #615646
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49606
    • ☆☆☆☆☆

    As I wrote in reply to your other question, please do not simply type out a full question and expect to be provided with a full answer. Ask about whatever it is in the printed answer that you are not clear about.

    The easiest way to solve this is to use a bit of elementary algebra.

    Suppose that at levels below 40,000, the fixed cost if F and the variable cost is V per unit.

    Then at the 30,000 level we get: F + 30,000V = 230,000,
    and at the 59,000 level we get: 1.25F + 59,000 x 0.9V = 365,500

    Solving these 2 equations will give you the values of V and F at levels below 40,000. For 47,000 units, increase F by 25% and reduce V by 10%.

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