Please help! Fixed and variable costs

Zoemarie123

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?

Pian32

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

Zoemarie123

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

Zoemarie123

These are the answers I’ve got, and doing the high low method, is not working out the answers in the mock answers