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CMA Intermediate · Management Accounting · Marginal Costing (Management Accounting)

A plant in Pune incurs the following total cost at different output levels: 2,000 units ₹1,10,000; 3,000 units ₹1,40,000. Using the high-low method, what is the estimated total cost at 4,000 units?

Total cost at 4,000 units is ₹1,70,000. The variable cost is ₹30 per unit from the change in cost over change in output, fixed cost is ₹50,000, so 50,000 plus 4,000 x 30 gives ₹1,70,000.

  1. A₹1,70,000Correct
  2. B₹1,80,000
  3. C₹1,60,000
  4. D₹1,50,000

Explanation

Variable cost per unit = (1,40,000 - 1,10,000)/(3,000 - 2,000) = ₹30. Fixed cost = 1,10,000 - 2,000 x 30 = ₹50,000. Cost at 4,000 units = 50,000 + 1,20,000 = ₹1,70,000. Check: 1,40,000 + 30,000 = 1,70,000.

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