Variable cost per unit calculation.

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FayeJones
FayeJones Registered Posts: 4 New contributor 🐸
in Management Accounting Techniques
Hello, can someone help me with how AAT have managed to get to their answer of £7.80 please. I've copied the exact mock exam question below:

Blenble Electronic Ltd manufactures a variety of electrical components.
The following information is available about the cost of product A28:

Units Total Cost (£)
1,200 24,860
1,400 26,420

(b) (i) Calculate the variable cost per unit of product A28
Answer : £7.80

My thoughts were to calculate variable cost per unit it would be total cost / units so:
24,860 / 1,200

But that doesn't come to £7.80...


The second question after that is:

b (ii) Calculate the total cost of producing 1,500 units of product A28
Answer: 27,200

I think I may understand the second question's answer if someone could kindly explain how AAT got to £7.80 please.

Thank you!


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  • anony123
    anony123 Registered Posts: 427 Dedicated contributor 🦉
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    Semi variable so 26420-24869 comes to 1750/209 which comes to 7.80. Then either one of the eg. 26420 - (7.80 times 1,400) would come out as 15500. This is the fixed cost and can be found using each of the high or low costs.
    Then 1,509 units would be 1500 times 7.80 and then add on the fixed which is 15500 and the result should be 27,200. My mistake if I’ve got this wrong very quick typing.
  • anony123
    anony123 Registered Posts: 427 Dedicated contributor 🦉
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    The 7.80 is using the high low method or semi variable method. High cost - low cost/ high units - low units.
    26420- 24…
    /1400-1200
  • anony123
    anony123 Registered Posts: 427 Dedicated contributor 🦉
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    Tell us if you need more help happy to help
  • FayeJones
    FayeJones Registered Posts: 4 New contributor 🐸
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    Amazing! Thank you so much =)
  • anony123
    anony123 Registered Posts: 427 Dedicated contributor 🦉
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    No problems. Thought it was from elements of costing level 2 lol.
    Best of luck for your exam. You will need the semi variable but the question is much more complex. And please make sure that you revise the excel parts.

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