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Semi variable cost calculation, and stepped budget

Can fellow students remind me how to calculate a variable cost from a semi variable cost.
And also how to calculate a stepped cost ,increasing at a number of units of monthly production?

Answers

  • EllisEllis Registered Posts: 11
    Of course!

    To calculate a variable cost from a semi variable cost, you need to use the High-Low Method.
    Imagine the following:

    Semi-Variable Costs
    20,000 units = £40,000
    25,000 units = £60,000

    Minus 25,000 units from 20,000 units, the difference is 5,000 units.
    Minus £40,000 from £60,000, the difference is £20,000

    Therefore you know that the Variable cost is £20,000 / 5000 units = £4 / unit.
    This is because the fixed costs do not change with the output, and therefore the difference in units (5000) must entirely be made up of the Variable Costs.

    FYI the example above doesnt actually work to work out Fixed Costs after as I thought it up off the top of my head, but if you look in textbooks / online for High-Low Questions using the above you'd be able to times the Variable Cost up by the amount of units, and the difference between that and total cost would be your fixed costs!

    Stepped Costs

    £5,000 for every 100 units.

    For the above example, if you had to work out the total for say, 450 units, you just have to times it up. Remember though you cant part multiply stepped costs. It's a bit easier to understand if I give an example below:

    450 units =
    4 lots of 100 units.
    1 lot of 50 units - you cant use a part amount for stepped, so you'll have to pretend this is 100 units again.
    Therefore
    5 lots of 100 units x £5,000 = £25,000 total stepped cost.

    I hope this helps! :)
    fedemenni
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