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levels of activity (units) Total Cost ( $)
16.000 135.000
22.000 170.000Variable cost per unit remain constant within the range of activity levels, but there is a step up of 5.000$ 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 = $ 42.400At 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 = $ 163.400However, 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
The first line of your workings is wrong.
The difference between 170,000 and 135,000 is not due simply to the extra variable cost (which is what your workings assume). 5,000 of it is the increase in the fixed cost and therefore only the remaining 30,000 is due to the extra variable cost.hallo, Mr john Moffat
-the question is saying, there is a step up of $5.000 in the fixed cost when the activity levels exceeds 17.500 units. why then are we subtracting this step up from 135000 which has the quatity which has not exceeded 17.500 unit. instead of subtracting it from 170.000 which has quantity of more than 17.500. help me to understand sir. thanxhi khan!
in my view,
variable cost = [(170000 – 5000) – 135000] / (22000 – 16000)
=30000 / 6000 = 5 per unit
fixed cost = (170000 – 5000) – (22000 * 5) = 55000 as the fixed cost.TC = FC + VC = 55000 + 5(20000) = 155000
adding $5000 to the total cost we have $160000 as our total costGood heavens – what you have written is exactly the same as what I wrote!!
I did not say to subtract the 5000 from 135000 at all.
I said to subtract it from the difference of 35000, which is exactly what you have done!!!!
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