Home For AAT student members AQ 2016 Foundation Certificate in accounting Elements of Costing

Please help! Fixed and variable costs

Zoemarie123Zoemarie123 Registered Posts: 2
Hi, can anyone tell me: if I have 2 total costs and the number of units, how do I work out the variable and fixed costs please?

Best Answer

  • Pian32Pian32 MAAT Posts: 385
    Accepted Answer
    You'll want to use the high low method to work out the two costs.

    Cost 1 (Large)= C1
    Cost 2 (Small)= C2
    Units 1 (Large)= U1
    Units 2 (Small) = U2

    The fixed costs in C1 and C2 will be the same amount. This means when you subtract one from the other the fixed costs are removed and the only part remaining is due to the variable cost. If you divide this by the difference in units then you'll have the variable cost per unit.

    (C1-C2)/(U1-U2) = Variable cost per unit.

    You can use the variable cost per unit to find the fixed cost from either total and then use the other to check your answers.

    Variable cost * U1 + Fixed Cost = C1.


    As an example lets have the 2 costs be £1200 and £2200 with the units being 10 and 20 respectively.

    Variable = (2200-1200)/(20-10) = £100 /unit

    100 * 10 + Fixed = £1,200

    Fixed = £200

    Check

    100 * 20 + 200 = 2200

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Answers

  • Zoemarie123Zoemarie123 Registered Posts: 2
    Fab, thank you sooo much, I know the high low method, I just couldn’t think how to get the answer. I really appreciate your reply
  • Zoemarie123Zoemarie123 Registered Posts: 2
    These are the answers I’ve got, and doing the high low method, is not working out the answers in the mock answers
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