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How do I get budgeted activity level?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › How do I get budgeted activity level?

  • This topic has 5 replies, 3 voices, and was last updated 3 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • October 11, 2015 at 8:44 am #275844
    qaz360
    Member
    • Topics: 13
    • Replies: 12
    • ☆

    Hi, sir. I have a problem with following question,

    The pharmacy in a busy hospital uses pre-determined rates for absorbing total overheads, based on the budgeted number of prescriptions to be handled. A rate of $7 per prescription has been calculated, and the following overhead expenditures have been estimated at two activity levels.

    Total overheades
    $97,000
    Number of prescriptions
    13,000
    —————————————–
    Total overheades
    $109,000
    Number of prescriptions
    16,000

    During a particular period fixed overheads were $45,000.

    Based on the data above, what was the budgeted level of activity in prescriptions to be handled during the period in question?

    (a) 13,000
    (b) 15,000
    (c) 16,000
    (d) 33,333

    And, I have searched for the answer then it said 15,000 is correct. I also looked at explanation which was-

    Variable OH + Fixed OH = Total OH OH
    [Fixed OH per prescription = $7 – $4 = $3]
    Total Fixed OHs = $45,000

    >> Budgeted Activity Level <<
    $45,000/$3 = 15,000 prescriptions

    But the part I don’t understand is where the value of $4 comes from.

    Sir, would you please explain furthermore with details?

    Thank you.

    October 11, 2015 at 10:23 am #275857
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    You need to use the high-low method to calculate the variance and fixed costs.

    From the two activity levels given, the variable overheads per prescription are (109,000 – 97,000) / (16,000 – 13,000) = $4.

    (If you are not sure about high-low, then do watch our lectures – our free lectures are a complete course for Paper F2 covering everything you need to pass the exam well.)

    October 11, 2015 at 5:36 pm #275886
    qaz360
    Member
    • Topics: 13
    • Replies: 12
    • ☆

    Oh! High-Low method!!!

    I never thought to use that!

    Anyway thank you very much

    October 11, 2015 at 7:34 pm #275898
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    You are very welcome 🙂

    May 5, 2022 at 10:04 pm #654994
    Shani@2022
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Hi,

    Can you please explain me why we need to divide 3 from the fixed cost ($45000)

    May 6, 2022 at 7:43 am #655024
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54659
    • ☆☆☆☆☆

    The total fixed cost is $45,000 and the fixed cost per prescription is $3 (as explained in my previous post). Therefore the number of prescriptions must be 45,000/3 = 15,000.

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