ACCA Applied Knowledge · Management Accounting · Flexible budgets
A department's budgeted overhead is $30,000 for 5,000 machine hours and $38,000 for 7,000 machine hours. Using the high-low method, what is the budgeted overhead for 6,000 machine hours if the cost is semi-variable?
The budgeted overhead is $34,000. The high-low method gives a variable cost of $4 per machine hour and fixed cost of $10,000. At 6,000 hours the variable cost is $24,000, and adding the fixed $10,000 gives $34,000.
- A$32,000
- B$34,000Correct
- C$36,000
- D$35,000
Explanation
Variable rate = (38,000 - 30,000) / (7,000 - 5,000) = $4 per hour. Fixed cost = 30,000 - 5,000 x 4 = $10,000. At 6,000 hours: 10,000 + 24,000 = $34,000. Option $36,000 wrongly ignores the fixed element's constancy by using a rate of $6 per hour.
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