- This topic has 7 replies, 2 voices, and was last updated 7 years ago by
.
- Posts
Dear Sir
an organisation has the following total costs at two activity level:
Activity level(units) 15000 240000
Total Costa R380 000 R470 000Variable cost per unit is constant in this activity range but there is a step-up of R18000 in the total fixed costs when the activity level exceeds 20 000 units.
What are the total costs at an activity level of 18000 units?
Please helpThe difference between the two costs is 90,000.
18,000 of this must be because of the step-up in the fixed costs, and therefore the extra variable cost is the remainder of 72,000.
Since the difference in units is 9,000 (I think you have put too many zeros in your question!!) then the variable cost per unit is 72,000/9,000 = $8.Therefore, since 18,000 is below the step-up, the total cost must be 380,000 + (3,000 x $8) = 404,000.
You really should be practicing questions from a Revision Kit from one of the ACCA approved publishers – they have answers and workings 🙂
The way I calculate it is that I use the high low method and find the difference(which is R90 000)and divide by 9000 units difference and get R9 per unit,not R8 variable cost per unit,after that I take R380 000 +R9x180000,and get the incorrect answer, why is it wrong?
A second problem is
Mug (Pty)Ltd incurs costs of R200000 when it produces 30 000 units and incurs costs totalling R140 000 when it produces 15000 units.The relevant range for the company is 0-35000 units after which fixed costs will increase by 45%.
Questions
1.what is the company’s total cost at 40 000 units produced?
2.What is the company’s variable cost percentage of total costs at the 40 000 production mark?.
The solution (I don’t understand part of it):
(R200 000-R140 000)/(30000-15000)=R4 per unit.
Y=mx+c
C=y-mx
C=200000-(R4x30000)
C=R80000
FMO if 40 000 units are produced:(R80 000×1.5 (I don’t understand this 1.5)=116000
VMO if 40 000 units are produced:(40 000xR4)=160 000
Total cost of producing 40 000 units is:R116 000+160000=27600018,000 is 3,000 more that 15,000, and so the only extra cost will be the extra variable cost of the extra 3,000 units.
Your method is wrong because the difference of 90,000 includes the extra fixed costs as I wrote before!
There is obviously a small typing error in the answer.
The line you don’t understand should read:
FMO if 40,000 units are produced: 80,000 x 1.45 = 116,000The final answer is correct.
(Multiplying by 1.45 is the same as adding on 45%)
Thank you a lot?.I’m clear.actually I figured the last one after after I have posted,the 1.5 one.
- The topic ‘step fixed costs’ is closed to new replies.