semi variable costs

donnas1977

help, working on a task where we are required to calculate and estimate the profit per batch. i have managed to work out the variable costs ok per batch but confused on how to work out the semi variable costs. we are also told that these should be calculated using high-low method. if 3000 batches are sold then the semi variable costs will be 7,380 and there is a constant unit variable cost up to this volume. i have had a total brain freeze on this calculation. any help is appreciated.


batches produced and sold 1200 1500 2000
sales revenue 36000 45000 60000
direct materials 5400 6750 9000
direct labour 12600 15750 21000
overheads 7200 9000 12000
semi variabe costs 3780
variable elemnent
fixed element
total cost 28980
total profit 7020
profit per batch 5.85

thanks

Donna

Rinske

Hi Donna,

From your table thing it's not clear where the 3780 falls under, mainly because for some reason the forums don't allow tabs to work...

Anyways, the high low method is calculated by the difference between the highest cost and lowest cost for the semi variable costs and the difference between the amount of batches/ units.
As you only got two of these costs given, you can calculate it by deducting the lowest costs from the highest costs.

In this case it is 7,380 less 3,780 and the 3000 minus 1200 (assuming 1200 for example, but that is something you would know).

As both have the fixed costs part in the costs, by deducting each, you are left with the variable cost per unit for the difference in the units. You can then calculate the variable cost per unit, by dividing the difference in costs by the difference in units.

You now got the variable cost per unit, to calculate the fixed part, you now go back to the 3000 units (or the others). You deduct the variable part of the costs from the total costs and this gives you the fixed part.

You can use the other one for double check, something which I usually did, just to make sure I didn't make a mistake somewhere.

In this case it would give you the following calculation:

3000 - 1200 = 1800 = difference in number of units
7380 - 3780 = 3600 = difference in price for those units

3600 / 1800 = 2 = variable cost per unit

2 * 3000 = 6000 = variable cost for 3000 units

7380 - 6000 = 1380 = difference between total and variable costs, so this is the amount of fixed costs

Control figure:
2 * 1200 = 2400
3780 - 2400 = 1380

Now you know the variable and fixed costs split, you would be able to calculate for any amount of units/ batches how many the costs would be.

The fixed costs are fixed, therefore stay the same and the variable cost is 2 per unit/ batch.

Hope this helps!
Cheers,
Rinske

donnas1977

thanks Rinske for explanation, it has helped alot. the 3780 comes from the 1200 batch.

anwarbiggy

Rinske, you are a life saver mate. thank you ever so much. These blimmin bpp books are useless!

araquib84260

Rinske you are great