Elements of costing question help!!!

Hi,

I have come across the same sort of question in all of my practice exams but have not been taught the way to solve it!! And I can't for the life of me figure it out myself!

This is how the question is set out...

Complete the table below by inserting all costs for the activity levels of 3,000 and 7,000.

3,000 units 3,500 units 5,000 units 7,000 units
Variable cost
Fixed cost
Total cost 22,500 27,000


Can someone PLEASE help me on how to work these questions out?? I'm baffled!!!!

Many thanks

Comments

  • N4TN4T Posts: 191AAT Student

    Do you mean for 5000 and 7000 units? or is it 3000 and 7000 units. The spaces disappears so the numbers are no longer shown in the correct column once you post.
  • N4TN4T Posts: 191AAT Student
    What I wanted to know was which units are the total costs £22,500 and £27,000 for?
  • luce_xoluce_xo Posts: 5Registered
    edited March 2017
    Sorry didn't realise it would change once posted!! The question asks for 3,000 and 7,000 on the sample assessment 1.

    The total costs already given are for 3,500 units (total £22,500) and 5,000 units (total £27,000)
  • N4TN4T Posts: 191AAT Student
    You will need the high/low method to work out variable and fixed costs.

    Calculate VC and FC for 3500 and 5000 units first then you can use the answers to complete 3000 and 7000 units.

    The high/low method means using the highest level of activity and the lowest level of activity and their corresponding total cost. Here you have only two 3500 and 5000 units (there is no choice) but often you will be given 3 or 4 to pick from. The level of activity in this example is production level in units.

    5000 units is the highest level at total cost £27,000
    3500 units is the lowest level at total cost of £22,500

    You can look up the formula for high/low method, the result is

    £27,000 - £22,500 =5000units - 3500units
    £4500 / 1500 units = £3 per unit (this is variable cost per unit)

    Substitute this in either 3500 or 5000 units.

    e.g. 3500

    VC 3500 units x £3 = £10,500
    FC............................
    TC.............................= £22,500

    Therefore FC = £12,000

    You can check with 5000 units
    VC 5000 units x £3 = £15,000
    FC............................= £12,000
    TC...........................= £27,000

    You have worked out VC = £3 per unit and FC = £12,000 and can now complete the costs for 3000 and 7000 units

    3000 units:
    VC 3000 units x £3 = £9000
    FC.......................... = £12,000
    TC.........................= £21,000

    7000 units:
    VC 7000 units x £3 = £21,000
    FC...........................= £12,000
    TC...........................= £33,000
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