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Quality Candles - Unit 6 Simulation

anniebabeanniebabe Experienced MentorRegistered Posts: 595
Hi Guys

Quality Candles - Unit 6 ECR Simulation

Has Anyone ever done this simulation before? It is in the Osborne Workbook.

I am fortunate to have a copy of the answers for this sim but I am struggling to understand why they are using the High Low Method on Task 11 - for packing overhead cost .

Any help is much appreciated.

Comments

  • RinskeRinske Font Of All Knowledge Registered Posts: 2,453
    Hi Annie,

    I haven't got the books, but the high low method is usually used for costs where you have a fixed and variable part and your trying to work out what the variable part and the fixed part is.

    If that doesn't help and noone with the books comes along, feel free to post the question and I'm happy to have a look.
  • anniebabeanniebabe Experienced Mentor Registered Posts: 595
    Thanks Rinske
  • MargaMarga Experienced Mentor Registered Posts: 981
    high low method

    Overhead cost= fixed element + variable element

    Eg Light heat and power cost

    100 units 200 units

    October £400,000 £600,000

    therefore we have

    100 units --> £400,000 cost if we just divide 400,000/100 it gives us £4000 cost per unit
    200 units --> £600,000 cost if we just divide 600,000/200 it gives us £3000 cost per unit

    so as the unit cost is different the above shows that light heat and power is cost that has a fixed element and a variable element

    to calculate these

    use the formula y = m*x + c where
    y is the total cost
    m is the variable cost per unit
    x is the number of units
    c is the fixed cost element

    so with the above figures we have

    400,000 = 100*m +c
    600,000 = 200*m +c

    With these two equations you can calculate m and c

    m = £2,000
    c = £200,000

    (check:
    100 units * £2,000 + £200,000 = £400,000
    200 units * £2,000 + £200,000 = £600,000)


    So if when calculating unit costs you get different figures from two different number of units is because the cost has a fixed element and a variable element


    Some overhead costs are of this nature: telephone costs (there is a minimum charge + whatever calls you make, energy costs there is a minimum charge + whatever watts are used)

    Hope the above helps, but you are more than welcome to post the question and as Rinske said we can help with the actual figures
  • sdvsdv Experienced Mentor Registered Posts: 585
    anniebabe wrote: »
    Hi Guys

    Quality Candles - Unit 6 ECR Simulation

    ........................why they are using the High Low Method on Task 11 - for packing overhead cost .

    Any help is much appreciated.

    You will have been given values of expenses at a given activity / production

    Exenses consists of Fixed costs, Variable Costs and Semi-Variable costs.

    FC and VC are easy to work out.

    However, for semi-variable costs FC will remain the same but VC will change with production activity.

    Therefore you have to use High-Low method to work out FC and VC elements in a semi-variable costs expenses.
  • anniebabeanniebabe Experienced Mentor Registered Posts: 595
    ok thanks for your replies, I obviously need to read the questions again more carefully.
    Will have another look today.
    thanks again.
  • anniebabeanniebabe Experienced Mentor Registered Posts: 595
    Still struggling with this task 11
    I understand that the packing overhead cost is variable so i need to use the high low method. getting 20 pence per case of candles but after that I am not sure what they are doing. and the simulation is quite long to retype and post on here - i am dooomed - lol
  • SandyHoodSandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
  • anniebabeanniebabe Experienced Mentor Registered Posts: 595
    thanks Sandy - thats very useful.
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