V.cost/unit calculation — OpenTuition Forums

UUsman9y ago

Hi john sir..plz help me regarding following. Output level T.cost 1000. 4000 2000. 7000 3000. 10000 4000. 9500 A step up of $500 occurs at an output level of 3500 units. What would be the variable cost/unit using high-low method. John sir...my answer is $3/unit..where as answer on the kit is $1.67. John sir..to find v.cost/unit..we should use those two activity level where there is no change in fixed cost. So i took the a diff of cost between 10000 and 4000 and diff between acitivity level 3000 and 1000..so 6000/2000= $3/unit I did all ques in this way..where it was applicable. And here it is applicable in my opinion...bt its wrong nw.. Moreover plz explain how it is possible that a cost is 10000 on 3000 units and 9500 on 4000 units despite the fact that there is a step up of 500 units

John MoffatTutor9y ago#1

You have either copied the question wrongly or there is a typing error. The cost for output of 4,000 cannot possibly be lower than the cost for output of 3,000.

UUsman9y ago#2

Yeah that makes sense what u r saying..i reviewd the ques..its 100 percent accurate...its a exam question from bpp kit..

UUsman9y ago#3

Its a december 2011 atempt of fma/f2. Example no 1.

John MoffatTutor9y ago#4

I have found the question but it is still a very poor question (and I am surprised by the examiner setting this - I will say so at the next meeting with the examiner! :-) ) Using pure high-low, the highest output is 4,000 units and the lowers is 1,000 units. The increase in cost between the two is 9,500 - 4,000 = 5,500, but since 500 is because of the extra fixed costs, the extra variable cost is 5,000. Therefore the variable cost is 5,000 / (4,000 - 1,000) = 1.67 However it is still a terribly poor question and I am going to complain about it :-)

UUsman9y ago#5

Hmm..thnx sir..moreover sir..it does't make any sense that there is stepup of 500 in cost bt despite this fact it is lower.. Thankx

John MoffatTutor9y ago#6

I agree with you - it is stupid!

UUsman9y ago#7

U sit with examiner? Wow..he/she is ur friend?

John MoffatTutor9y ago#8

No :-) There are meetings of tutors with the examiners every so often.