ACCA Applied Knowledge · Management Accounting · Flexible budgets
A company budgeted 8,000 units with a semi-variable cost of $46,000. At 12,000 units the semi-variable cost is expected to be $62,000. What is the semi-variable cost in the flexed budget for 10,000 units, using the high-low method?
The flexed semi-variable cost is $54,000. The high-low method gives a variable rate of $4 per unit from the $16,000 cost change over 4,000 units, and fixed cost of $14,000. At 10,000 units the cost is $14,000 plus $40,000.
- A$52,000
- B$54,000Correct
- C$57,500
- D$60,000
Explanation
Variable rate = (62,000 - 46,000) / (12,000 - 8,000) = $4 per unit. Fixed = 46,000 - 8,000 x 4 = 14,000. At 10,000 units: 14,000 + 40,000 = 54,000. $57,500 results from simple averaging of unit rates, ignoring the fixed element.
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