High/low Method - ELCO Mock assessment 1 - Task 6

Ja98200er

I'm prepping for my ELCO exam this week and just have one item that I need to fully understand from a mock asessment if anyone can help?

Mock assessment 1 - Task 6 B
I understand the hi low method and that I need use a high total cost value and a low total cost value, but in this question I can only calculate one in the first column.

I've tried to use the CPU from the first column to calculate total costs for the others (CPU X units + fixed) but it doesnt match the answers below. I realise the formula is actually VCU X Units + fixed = total cost, but im not sure what else to do.

Workings:

18000 / 2000 = 9 (cost per unit)

9 (CPU) x 4000 + 15000 = 51000 (should be 21000)
9 (CPU) x 6000 + 15000 = 69000 (should be 24000)

What am I missing here?

Any help would be much appreciated

Question


Answers

Krisso

The question has already given you the detail required. The fixed cost will remain constant across all the units as it is just fixed and not step fixed. You then just need to work out the variable cost per unit which is Variable costs for 2000 units 3000/2000= 1.50 and then apply this variable per unit to the other 2 boxes

4000 x 1.50 = 6000
6000 x 1.50 = 9000

You now have all you need to complete the the boxes

Units
2000 4000 6000
Variable Costs (£) =2000*1.5 =4000*1.5 =6000*1.5
Fixed Cost (£) 15000 15000 15000
Total Cost (£) =3000+15000 =6000+15000 =9000+15000

Ja98200er

Hi Krisso

Thanks very much for the quick reply. That all makes sense.