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 2 years ago by John Moffat.
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- October 11, 2015 at 8:44 am #275844
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
16,000During 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) 33,333And, 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 prescriptionsBut 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 #275857You 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 #275886Oh! High-Low method!!!
I never thought to use that!
Anyway thank you very much
October 11, 2015 at 7:34 pm #275898You are very welcome 🙂
May 5, 2022 at 10:04 pm #654994Hi,
Can you please explain me why we need to divide 3 from the fixed cost ($45000)
May 6, 2022 at 7:43 am #655024The 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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