Splitting other overheads PLEASE HELP!!

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:32AM in AAT student discussion
hi

I have this task to do and it drives me mad:

Different levels of activity:

UNITS 8000
DIRECT LABOUR: £71200
DIRECT MATERIAL: £520000
VARIABLE PRODUTION OVERHEAD: £56000
OTHER OVERHEADS: £42000
FIXED COSTS:155000

UNITS 10000
DIRECT LABOUR:£89000
DIRECT MATERIAL: £650000
VARIABLE PROD. OVERHEAD: £70000
OTHER OVERHEADS: £48000
FIXED COSTS: £155000

Question: Calculate activity for 14000 units spitting other overheads into variable and fixed.

UNITS 14000:

DIRECT LABOUR: £124600
DIRECT MATERIAL: £910000
VARIABLE PROD OVERHEAD:£98000
FIXED COSTS: £155000
OTHER OVERHEADS: ???

I have no idea how to split in this case the other overheads, can anyone help me?

thank you everybody in advance!

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Splitting other overheads PLEASE HELP!!
    Manuelissima wrote:
    hi

    I have this task to do and it drives me mad:

    Different levels of activity:

    UNITS 8000
    DIRECT LABOUR: £71200
    DIRECT MATERIAL: £520000
    VARIABLE PRODUTION OVERHEAD: £56000
    OTHER OVERHEADS: £42000
    FIXED COSTS:155000

    UNITS 10000
    DIRECT LABOUR:£89000
    DIRECT MATERIAL: £650000
    VARIABLE PROD. OVERHEAD: £70000
    OTHER OVERHEADS: £48000
    FIXED COSTS: £155000

    Question: Calculate activity for 14000 units spitting other overheads into variable and fixed.

    UNITS 14000:

    DIRECT LABOUR: £124600
    DIRECT MATERIAL: £910000
    VARIABLE PROD OVERHEAD:£98000
    FIXED COSTS: £155000
    OTHER OVERHEADS: ???

    I have no idea how to split in this case the other overheads, can anyone help me?

    thank you everybody in advance!


    What they're asking you to calculate, is both the fixed and variable costs for 14,000 units.

    So, firstly you need to use the "high-low" method to calculate the variable costs per unit - which will also help you to work out the fixed costs, too.

    If, when making 8,000 units the other overheads cost £42,000 and when making 10,000 units they cost £48,000, you can calculate the variable element by taking one from the other.

    If:

    10,000 units = £48,000
    8,000 units = £42,000
    then
    2,000 units = £6,000
    1 unit = £3

    So, if variable costs are £3 per unit then we can calculate fixed costs.

    If (10,000 units x £3/unit) + fixed costs = £48,000
    then, fixed costs = £18,000.

    To double check. If,

    (8,000 units x £3/unit) + fixed costs = £42,000
    then fixed costs = £18,000.

    Therefore, if making 14,000 units the variable costs are £3 per unit and the fixed costs are always the same (£18,000), then the total other overheads will be calculated as:

    (14,000 units x £3 (variable costs)) + £18,000 fixed costs.

    £42,000 + £18,000 = £60,000

    Hope this helps.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Splitting other overheads PLEASE HELP!!

    You are so great!

    thank you very much!

    now everything is much clearer!

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