Energy costs using high-low method

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mazzy1980
mazzy1980 Registered Posts: 3
in Management Accounting: Budgeting
Can any one help me. I have a mental block! I am working through a practice assessment on the AAT website. I am completing a budget for an alternative scenario. I am stuck on how to calculate the energy costs.

Operating budget: Energy costs £43,000
Assumption in the first scenario: there is an allowance for an energy price rise of 7.5%
Alternative scenario: revise the energy price rise to 10%

I have an exam tomorrow and have a complete block on how to do this.

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  • PeterC
    PeterC Registered, Tutor Posts: 245 Dedicated contributor 🦉
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    If the £43,000 figure is before any changes, then
    First scenario: £43,000 + 7.5% = £46,225
    Alternative: £43,000 + 10% = £47.300

    If the £43,000 is actually the first scenario (after the 7.5% rise), then
    Cost before 7.5% rise = 43,000 / 1.075 = £40,000
    Alternative: £40,000 + 10% = £44,000
  • mazzy1980
    mazzy1980 Registered Posts: 3
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    Thank you, this now makes complete sense. :-)
  • PeterC
    PeterC Registered, Tutor Posts: 245 Dedicated contributor 🦉
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    You're welcome

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