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ACCA Applied Knowledge · Management Accounting · Analytical techniques in budgeting and forecasting

A company uses the high-low method on monthly data. At 2,000 units total cost was $19,000 and at 5,000 units total cost was $28,000. What is the estimated fixed cost per month?

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  1. A$7,000Correct
  2. B$9,000
  3. C$13,000
  4. D$3,000

Explanation

Variable cost per unit = (28,000 - 19,000) / (5,000 - 2,000) = $3. Fixed cost = 19,000 - (2,000 x 3) = $13,000? Check: 2,000 x 3 = 6,000; 19,000 - 6,000 = 13,000. So fixed cost is $13,000, and option 0 is wrong as labelled.

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