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# High Low Method

emmalh
Registered Posts:

**2**
Am really struggling with this question, not sure where to start,

Any help would be appreciated

Thanks Emma

Use the high low method to predict the costs at a production level of 8,000 units

Production level

Units Total cost

£

5,000 15,500

7,000 19,500

9,000 23,500

11,000 27,500

Units Cost £

£ Variable unit cost

£ Fixed cost

£ Production cost for 8,000 units

Any help would be appreciated

Thanks Emma

Use the high low method to predict the costs at a production level of 8,000 units

Production level

Units Total cost

£

5,000 15,500

7,000 19,500

9,000 23,500

11,000 27,500

Units Cost £

£ Variable unit cost

£ Fixed cost

£ Production cost for 8,000 units

0

## Comments

4Low 5000 units £15500

= 6000 units £12000

£12000/6000 units= £2 variable unit cost

£2 x 5000 units= £10000 variable cost

£15500 total cost

-£10000 variable cost

=£5500 fixed cost

8000 units x £2 =£16000 variable cost

+£5500 fixed cost

=£21500 total cost

79U= Units

£= value

Step 1-

7000U-5000U= 2000U

£19500-£15500=£4000

i.e. 2000U =£4000

Or 1U= £2 ( this is the variable cost per unit)

Step 2-

You should know total variable + total fixed= total cost.

Or total fixed = total cost- total variable

Now use this variable unit cost and formula to find a fixed costs by taking Any of the production level figure. All should result in same answer.

Let's use 5000U=£15500

Fixed cost = £15500-( 5000×£2)= £15500-£10000 = £5500

So, £5500 is a fixed cost and will be charged to any production level.

Step 3-

Now at last, let's find the cost of 8000U.

Fixed cost= £5500

Variable cost= £2×8000=£16000

Total cost= £21500.

2Emma