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CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Kaveri Components Pvt. Ltd. produces 5,000 units in a month at a total cost of Rs 3,50,000 and 8,000 units at a total cost of Rs 4,70,000. Assuming the cost is semi-variable and linear, what would be the total cost at 6,500 units?

The total cost at 6,500 units is Rs 4,10,000. The high-low method gives a variable cost of Rs 40 per unit and a fixed cost of Rs 1,50,000, so the cost is 1,50,000 plus 6,500 times 40, which equals Rs 4,10,000.

  1. ARs 4,10,000Correct
  2. BRs 4,25,000
  3. CRs 3,90,000
  4. DRs 4,00,000

Explanation

Variable cost per unit = (4,70,000 - 3,50,000)/(8,000 - 5,000) = 1,20,000/3,000 = Rs 40. Fixed cost = 3,50,000 - 5,000 x 40 = Rs 1,50,000. At 6,500 units: 1,50,000 + 6,500 x 40 = 1,50,000 + 2,60,000 = Rs 4,10,000. Check at 8,000: 1,50,000 + 3,20,000 = 4,70,000. Rs 4,25,000 results from wrongly using the average cost.

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