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Dear Sir
I want to known about,Period ,Plant operation hours, cost , index
period 1 , 8500 , 131560 , 115
period 2 , 7750 , 137050 , 121
period 3 , 10250 , 163680 , 132
period 4 , 9800 , 160440 , 140In this information , to analyse variable and fixed costs at period 3 price level index.
To use high low methodfirst – chose period 3 and 2
diff in unit = 2500
diff in cost = (163680 * 115/132)- (127050 *115/121)=21850
so variable cost per unit = 8.74second – chose period 4 and 3
diff in unit = 450
diff in cost = (163680 * 115/132)- (160440*115/140)= 10810
so variable cost per unit = 24.02I don’t understand why not equal variable cost per unit in first and second chosing.
May I known how I chose level of activities to use high low methow in this confition.
Thank YouYou always choose the highest and lowest of the dependent variable.
In this case it is the hours – because the cost depends on the number of production hours.
(I hope that you are watching the free lectures – the provide a complete course and cover everything needed to pass F2 well 🙂 )
choose highest and lowest level
Thank you Sir,
Now , I am very happy.
Thank you for your answer.MONTH……………UNITS…………OVERHEAD…………. INDEX
JAN………………….10………………….3352………………….100
FEB………………….10.5………………….3479………………….101
MAR………………….12………………….3860………………….102
APR………………….9………………….3098………………….104
MAY………………….9.5………………….3225 ………………….105
JUN………………….10.25………………….3416………………….106Q. Using high low analysis, what is the variable cost per unit in June’s prices?
Answer is {(3860 x 106/102) -(3098 x 106/104)} / (12-9) = 284
Please be kind enough to explain how’s this answer is getting in detail.
Thank YouMarch has the highest number of units, and April has the lowest number of units. So we use the high low method on those two months.
The $’s need restating in June prices first, and so to restate the March prices we multiply by 106. (the June price index) and divide by 102 (the March index). We do a similar exercise on the April prices.
Have you watched my free lectures on the high low method and on index numbers, because the above is explained in the lectures. (The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.)
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