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Dear sir,i confuse choosing two activity level when using high low method in stepped fixed cost.for example.
activity level (units) 4000 6000 7500
total cost $40800 $50000 $548000
varibal cost per unit is constant within this activity range and there is step up 10% in the total fixed cost when acctivity level exceeds 5500units
what is total cost an activity level of 5000 units
You cannot have typed out the cost figures correctly – there is no way that the cost can have jumped from 50,000 to 548,000 🙂
The highest one must have read 54,800.Since the two highest are both above the 5,500 threshold for fixed costs, the variable cost per unit must be (54800 – 50000) / (7500 – 6000) = $3.20
Therefore the fixed cost (including the step-up) must be 50,000 – (6.000 x 3.20) = $30,800.
This is 10% higher than the fixed cost before the step-up and so the lower fixed cost must be 30,800 x 100/110 = 28,000.Therefore at 5,000 units the cost must be (5,000 x 3.20) + 28,000
The same way – with the high low method we only use 2 of the activity levels anyway (as in this question).
Have you watched my free lectures on high low? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
Hi Everyone,
Please I need a help on the question below.The following data related to the overhead expenditure of contract cleaners ( for industrial cleaning ) at two activity levels:
Square metres cleaned….12,750…15,100
Overhead…………………..$75,950…$83,585When more than 14,000 square metres are industrially cleaned, there will be a step up in fixed costs of $4,700.
Required:
Calculate the estimated total cost if 14,500 square metres are to be industrially cleaned.So, I don’t know how to solve it.
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