Good day sir. Please sir I am finding it so difficult to solve this particular question, and I don't know if you can break it down in pieces the way I will understand it better sir.. I have used different strategies no way... even followed working examples yet no way. It goes like this;
The following information relates to the manufacturer of product AB in 2007.
Unit. Total cost
200. 7000
300. 800
400. 8600.
For output above 350 units the variable cost per unit falls by 10percent. This fall applies to all unit, not just the units above the 350 threshod.
What is the cost of producing 450 units in 2008.
Thank you sir.
Ask the Tutor ACCA MA
High low method
10y ago#1You have mistyped (or the book you found this in has mistyped!) - the total cost for 300 must be $8,000 (not $800)
Use the high low approach in the normal way on 200 and 300 units (because the are both below 350). You will then get the variable cost to be $10 per unit and the fixed cost to be $5,000.
Above 350 units, the variable cost will fall to $9 per unit and the fixed cost will stay at $5,000. (You can check it works with 400 units).
Then getting the cost of 450 units should be no problem :-)
Yes sir. It was really mistyped by the book itself. I just worked it out with the $8,000 and I got the right answer from the given options. Thank you very much sir. You are wonderful sir. God Bless you!.
10y ago#3You are welcome :-)
Another question please??
Berry has recorded the following costs over the last six months
month total cost units produced
‘000 ‘000
1 74.00 3.00
2 72.75 1.75
3 73.25 2.00
4 75.00 2.50
5 69.50 1.50
6 72.75 2.00
Using the high – low method what would be the total cost equation?
The correct answer is
Total cost = 65,000 + 3 x Quantity .
I try to calculate with high-low method, but am getting a different answer.. so, am wondering if high – low method even have an equation?? Which I have not even come across in my studies… can you help me explain the High-Low method equation and how is the answer ; 65,000 + 3 * Quantity.?
Thanks.
10y ago#5The highest quantity is 3.00 (for which the cost is 74.00) and the lowest quantity is 1.50 (for this the cost is 69.50). Therefore the variable cost is (74.00 - 69.50) / (3.00 - 1.50) = $3 per unit.
The fixed cost = $74 - (3 x $3) = $65 (i.e. 65,000)
The total cost is always equal to the fixed cost + quantity x var cost per unit!!
I do suggest that you watch my free lectures. They are a complete course for Paper F2 and cover everything needed to be able to pass the exam well.
Thank you very much sir.
10y ago#7You are welcome :-)
Sign into reply to this topic.