ACCA Applied Knowledge · Management Accounting · Flexible budgets
A semi-variable cost was $14,000 at 2,000 units and $20,000 at 5,000 units. Using the high-low method, what is the budgeted cost at 4,000 units?
The budgeted cost is $18,000. The high-low method gives a variable cost of $2 per unit and fixed cost of $10,000, so at 4,000 units the cost is $10,000 plus $8,000.
- A$18,000Correct
- B$16,000
- C$17,000
- D$19,000
Explanation
Variable rate = (20,000 - 14,000)/(5,000 - 2,000) = $2 per unit. Fixed element = 20,000 - 5,000 x 2 = $10,000. Cost at 4,000 units = 10,000 + 8,000 = $18,000. Check at 2,000: 10,000 + 4,000 = 14,000.
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