Costs and Revenues question - High/Low technique?

AATchick

Hi All, I'm struggling a bit with one of the AAT assessment questions, practice assessment 1, section 2.1 where you have to calculate the "profit per batch" and use the high/low method on semi variable costs.

I have managed to fill in the answers to all variable costs by calculating £ over units then multiply by the number in the 2 new batches, but I've got stuck on the semi-variable bit.

So here's some more info: "The semi-variable costs should be calculated using the high-low method. If 3000 batches are sold, the total semi-variable cost will be £7380 and there is a constant unit variable cost up to this volume".

It's already given me the answer for 1200 batches, but I need to know for 1500 and 2000 batches and I need to calculate the variable and fixed element.

Can anyone help please? :-( x

Nps

Gosh, Cost and Revenues is causing some problems today. That exact exam is still open on my computer from the last request!

High low method

Take your lowest quantity and cost, so 1200 units at a cost of £3780
Take your highest, so 3000 units at £7380

The difference between the two is 1800 units and £3600. As this contains only variable elements, you can calculate that the variable element is £2 per unit (3600/1800). Substitute this into either the highest or lowest costs/units and you can calculate what must be the fixed portion.

AATchick

Of course, thank you Nps1976 - it seems to simple now!!

Whilst you're being extremely helpful... could you tell me how to work out the fixed element of this variable cost? I have tried taking away the variable cost from the total but the answer suggests this is not the case and I don't know why the answer would be 1380 for 1500 and 2000 batches :-( I know fixed should be the same but I don't know where to get the figures from?

Also, I'm really sorry, how do you calculate the profit per batch, this doesn't seem like a straightforward calculation either :-(

Thanks so much for you help so far I really appreciate it! xx

Nps

We know that the variable element is 2 per unit, so multiply that by 1200 and you know that 2400 of the total 3780 cost is the variable bit. The remainder (1380) must be the fixed bit. Check your working by doing the same with the figures for 3000 units and you should get to the same answer. So whatever volume you are dealing with, the fixed part will always be 1380.

Nps

Profit per batch is just total profit divided the number of batches. If you're not getting the correct answers, you must have gone wrong in the table somewhere.

AATchick

Thanks so much for your help - very gratefully received! :-) thanks again x