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Indices and inflation

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Indices and inflation

  • This topic has 1 reply, 1 voice, and was last updated 1 month ago by Mne040603.
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  • August 7, 2016 at 3:39 am #331759
    ichbinyahia
    • Topics: 4
    • Replies: 27
    • ☆

    Example 1
    The following data relates to a company’s overhead cost.
    Time Output Overhead cost Price
    (units) ($) index
    2 years ago 1,000 3,700 121
    current year 3,000 13,000 155
    Using the high low technique, what is the variable cost per unit (to the nearest $0.01) expressed in current year
    prices?
    A $3.22
    B $4.13
    C $4.65
    D $5.06
    The question relates to study guide references A3h and C2n.
    The correct answer is B. This is calculated by firstly adjusting the overhead cost from 2 years ago to current price
    levels by multiplying by 155/121, to obtain a cost of $4,740. This figure is then used in a high low calculation
    (change in cost divided by change in activity) to obtain the variable cost per unit (($13,000 – $4,740) / (3,000
    units – 1,000 units) = $4.13).

    Question when I multiply or divide 155/121, Do not obtain $4,740, Could you kindly explain how did they work out the figure $4,740 to adjust for inflation ?

    May 11, 2022 at 9:13 pm #655432
    Mne040603
    • Topics: 0
    • Replies: 1
    • ☆

    155/121 x 3700 = $4,739.67 ($4,740 to the nearest dollar)

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