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Hi john sir..plz help me regarding following.
Output level T.cost
1000. 4000
2000. 7000
3000. 10000
4000. 9500A 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 unitsYou 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.
Yeah that makes sense what u r saying..i reviewd the ques..its 100 percent accurate…its a exam question from bpp kit..
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 🙂
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
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