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High low method fixed stepped cost

Forums › Other Accountancy Qualifications Forums › High low method fixed stepped cost

  • This topic has 7 replies, 2 voices, and was last updated 10 years ago by waseem.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • July 6, 2014 at 8:11 pm #178275
    waseem
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    Activity level Total costs
    500 4000
    1000 6000
    1500 10000

    Fixed cost is stepped up after 1000 units. calculate total cost for:
    a:800
    b:2000

    can any 1 please solve this problem

    July 6, 2014 at 10:08 pm #178278
    haywhai08
    Member
    • Topics: 0
    • Replies: 2
    • ☆

    first, the stepped up fixed cost of 1000 will b deducted from the total cost of 10000, i.e 10000-1000= 9000
    now perform your high and low analysis, (9000-4000)/(1500-500)= 5. this is your variable cost per unit.
    remember your formula, y=a+bx. Y=total cost, a=fixed cost n b=variable cost.
    Now, finding our A, u can use either of d high or low activity level. Lets use the high here,
    9000=a+(5*1500). 9000=a+7500, a=9000-7500, a=1500.
    now, A=1500 is your fixed cost before step and (1500+1000)= 2500 is your fixed cost after step up.
    now determine your total cost of 800 and 2000.
    Use this formulas: TC=1500+5(x) for cost below the step up and TC=2500+5(x) for cost above the step up.
    For 800, which is below the stepup, we use TC= 1500+(5*800) which will give you a total cost of 5500; while for 2000 which is above the stepup, we use TC= 2500+(5*2000) which will give you a cost of 12500. That is all, i hope this helps.

    July 7, 2014 at 9:25 am #178321
    waseem
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    i am thankful to you Haywhai08

    July 7, 2014 at 9:29 am #178322
    waseem
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    could you please define stepped fixed cost why we use this cost in high low method ?

    July 7, 2014 at 6:46 pm #178344
    waseem
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    Haywhai08 your answer is wrong today in class i checked from my class teacher he said this is wrong answer..

    July 7, 2014 at 6:52 pm #178345
    waseem
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    the variable per unit cost is 4 not 5
    fixed cost for no 1 is $ 2000
    fixed cost for no 2 is $4000
    A:800 UNITS: $2000+800*4=$5200
    B:2000 UNITS:$4000+2000*$12000
    THE CORRECT ANSWER OF THAT PROBLEMS OF STEPPED FIXED COST..

    July 7, 2014 at 10:57 pm #178363
    haywhai08
    Member
    • Topics: 0
    • Replies: 2
    • ☆

    i would like to see his workings, especially how the teacher got his variable cost per unit amd how the effect of the step up was reflected in the calculation.

    July 7, 2014 at 11:28 pm #178367
    waseem
    Member
    • Topics: 1
    • Replies: 5
    • ☆

    Activity level Total costs
    1000 6000
    1500 8750
    2000 10500

    Fixed cost is stepped up at 1500 units. calculate total cost for 500 units.

    please solve

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