ACCA Applied Knowledge · Management Accounting · Cost classification
A semi-variable cost was $14,000 when 2,000 units were produced and $19,000 when 3,000 units were produced. Using the high-low method, what is the estimated total cost at 2,600 units?
The estimated cost is $17,000. The high-low method gives a variable cost of $5 per unit from the $5,000 cost change over 1,000 units, and fixed cost of $4,000. At 2,600 units the total is $4,000 plus $13,000.
- A$17,000Correct
- B$16,500
- C$18,200
- D$15,600
Explanation
Variable cost per unit = (19,000 - 14,000)/(3,000 - 2,000) = $5. Fixed cost = 14,000 - (2,000 x 5) = $4,000. At 2,600 units: 4,000 + 2,600 x 5 = $17,000. Check with the high point: 4,000 + 15,000 = 19,000. The $18,200 option wrongly applies $7 per unit, which is total cost divided by units at the low point.
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