Mock paper 2 task 4 value of a and b

Hi

Can anybody help me with the above question think I’m being a bit dumb but I don’t even know where to start ! Thought it might be a high low thing ? Any help would be appreciated as I’m going mad!

Comments

  • AAT_TeamAAT_Team Administrator Posts: 507
    @lyndsey1570 if you post that question you may get a better response :)
  • lyndsey1570lyndsey1570 Registered Posts: 11

    thankyou :) I did try to amend my question to add it but it didn't let me?

    Jet is forecasting energy costs. If 150000 units are manufactured
    the energy costs are £55000. If 200000 units are manufactured the energy costs rise to £70000. The costs vary in a linear manner, they can be predicted using y=a+bx.
    X = Number of units manufactured
    Y= the total energy costs at that level
    What is the value of A and B?

  • CornishPixieCornishPixie Registered, MAAT, AATQB, AAT Licensed Accountant Posts: 50
    It is high low for this one. So High cost will be £70,000 and low cost will be £55,000. That's a difference of £15,000.
    The high units will be 200,000 and the low units are 150,000. That's a difference of 50,000 units.
    Therefore, £15,000 divided by the 50,000 units gives a result of 0.30 - this is your variable cost per unit which is B.

    You then need to find the fixed costs. Simply multiply 0.30 by the number of units and what is left will be the fixed cost. So, for example, 200,000 units x 0.30 = £60,000 but we know that it costs £70,000. Therefore the fixed costs will have to be £10,000 - this is A. You can check the result with the low usage.
  • lyndsey1570lyndsey1570 Registered Posts: 11
    @CornishPixie Thankyou so much for your help I really couldn't get the answer right!
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