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Question 1 in chapter 4 in F2 lecture

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Question 1 in chapter 4 in F2 lecture

  • This topic has 0 replies, 1 voice, and was last updated 9 years ago by khanhhoangvu.
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  • August 31, 2015 at 4:19 am #269203
    khanhhoangvu
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    • Topics: 4
    • Replies: 1
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    the question was as follows:

    levels of activity (units) Total Cost ( $)
    16.000 135.000
    22.000 170.000

    Variable cost per unit remain constant within the range of activity levels, but there is a step up of 5.000$ in the total fixed cost when the activity level exceeds of 17.500 units.

    what is the total cost at activity of 20.000 unit by using high – loe method.

    1. in my point:

    variable cost per unit = ($170.000 – $135.000) / (22.000 – 16.000) = 5.8 $
    the total cost at high levels was: 170.000 $
    the total variable cost was : 5.8$ * 22.000 = 127.600$
    the total fixed cost was: $170.000 – $ 127.600 = $ 42.400

    At output of 20.000:
    Due to variable cost per unit was unchanged and the total fixed cost also was unchanged
    so:

    the total variable cost = 5.8$ * 20.000 = $ 116.000
    the total stepped fixed cost = $ 42.400 + $ 5.000 = $ 47.400
    ==> the total cost must was : $116.000 + $47.400 = $ 163.400

    However, the correct answer in F2 notes was $163.000. I saw the solution in note but still did’t get why the minus $5.000 in total cost when determine variable cost per unit, not plus $ 5.000 into fixed cost at output 20.000.

    please explain my confused with many thanks

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