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Hello Sir Moffat!
I have watched your F2 lecture on The High/Low method but was confused when you said let’s check the low month which was
200 units x $100(variable cost) = 20,000+10,000 (fixed cost) = 30,000
I understand the rules of working out the high/low method in the lecture, but would of thought the working out of the Low month would be reached by using the same method we use for the high, for example I would of worked it out like this
30,000 (total cost at low level) – 200 (total units at low level) x 100 (total variable cost per unit)
Which is obviously not correct!
Am I right in thinking your explanation of working out the low month can only be reached after working out the total fixed cost??
I hope I am making sense!
Please can you kindly explain ?Many thanks
Taking the total cost (30,000) and subtracting the total variable cost (200 x 100), will give you the fixed cost (10,000).
You can get the fixed cost by using the ‘high’ figures (as I did in the lecture) or by using the ‘low’ figures. You get the same answer either way.
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