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ACCA Applied Knowledge · Management Accounting · Accounting for management

Brindle Ltd produces 4,000 units in a month at a total cost of $52,000. At 6,000 units the total cost is $66,000. Assuming linear cost behaviour within this range, what is the total cost at 5,000 units?

The total cost at 5,000 units is $59,000. The high-low method gives a variable cost of $7 per unit and fixed costs of $24,000, so 5,000 units cost $24,000 plus $35,000. This also matches the midpoint of the two known cost levels.

  1. A$59,000Correct
  2. B$57,000
  3. C$61,000
  4. D$55,000

Explanation

Variable cost per unit = (66,000 - 52,000)/(6,000 - 4,000) = $7. Fixed cost = 52,000 - 4,000 x 7 = $24,000. At 5,000 units: 24,000 + 35,000 = $59,000. Check: this is the midpoint of 52,000 and 66,000, which is 59,000.

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