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Q:The following data are records of output levels and overhead costs.
Hours Worked , 18,000 (January) , 21,000(December)
Total Costs , $86,800 ( January ) , $97,438(December)There was 3% inflation between january and december .The variable cost per hour worked,at January price levels and to the nearest $0.01 ,is:
A)$4.52
B)$2.68
C)$3.55
D)$2.60According to kaplan the correct answer is D but after hitting my head to the wall several times i cannot figure out how they came up with that answer. ?Can someone here please explain?
I assume you understand how Hi-low method works so I will skip explaining deep into it.
There was inflation of 3% between Jan to Dec, hence you will need to calculate what is the value in Dec if no inflation takes place.
$97,438/1.03=$94,600After getting the value in Dec excluded inflation you can continue your calculation by using Hi-low method.
($94,600-$86,800)/(21,000-18,000)=$2.60@vince5301 said:
I assume you understand how Hi-low method works so I will skip explaining deep into it.There was inflation of 3% between Jan to Dec, hence you will need to calculate what is the value in Dec if no inflation takes place.
$97,438/1.03=$94,600After getting the value in Dec excluded inflation you can continue your calculation by using Hi-low method.
($94,600-$86,800)/(21,000-18,000)=$2.60And one thing is a bit unclear sorry i am not much mathematically inclined .Why you divided 97,438 by 1.03? Are not we just supposed to minus 3% value of 97,438 from 97,438?
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