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1.aa co had budgeted production of 40 000 units for Dec and budgeted costs were:
Materials :$120 000
Labour:$200 000
Fixed overheads:$350 000The actual production in Dec was 350 000units
What are the flexed budget total cost?2.this year the output is 5000units and the overhead cost is $31 000
Three years ago the output was 2000 units and the overhead cost was $8800
The price index was 132 three years ago and is 164 this yearUsing the high low technique what is the variable cost per unit expressed in current year prices?
Tried to solve this for several times but I can’t come up with the correct answer …….
1. The variable costs for 40,000 units are 120,000 + 200,000 = 320,000
So 320,000/40,000 = $8 per unit.Therefore the total variable costs for 35,000 units are 35,000 x 8 = 280,000
The fixed costs are 350,000.
So the total cost is 280,000 + 350,000 = 630,000.(I assume the actual production was 35,000 units and not 350,000 as you have typed 🙂 )
2. First you need to restate the cost 3 years ago in current prices.
It is 8,800 x 164/132 = $10,933Now you can use high-low as normal and the variable cost is (31000 – 10933) / (5,000 – 2000) = $6.69 per unit.
Dear Mr John Moffat,
Could you please explain why you have to restate the cost 3 years ago in current price (in question 2) ? why dont we use the fingures of $8800 to calculate
what does it means?
Thank you Sir
The question asks for the variable cost in current prices.
Prices have increased – the index numbers show that.
It will help you to watch the free lecture on index numbers.
(Our lectures are a complete course for Paper F2 and cover everything you need to be able to pass the exam well.)
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