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

Kaveri Textiles has the following monthly data: output 5,000 units; total cost at 5,000 units Rs 3,50,000; at 7,000 units Rs 4,30,000. The cost is semi-variable. Using the high-low method, what is the fixed cost per month?

Fixed cost is Rs 1,50,000. The variable rate is the change in cost, Rs 80,000, divided by the change in units, 2,000, giving Rs 40 per unit. Subtracting Rs 2,00,000 variable cost from Rs 3,50,000 total at 5,000 units leaves Rs 1,50,000.

  1. ARs 1,50,000
  2. BRs 2,00,000Correct
  3. CRs 40,000
  4. DRs 3,00,000

Explanation

Variable cost per unit = (4,30,000 - 3,50,000) / (7,000 - 5,000) = Rs 40. Variable cost at 5,000 units = Rs 2,00,000. Fixed cost = 3,50,000 - 2,00,000 = Rs 1,50,000. Check at 7,000 units: 2,80,000 + 1,50,000 = 4,30,000. So the correct fixed cost is Rs 1,50,000.

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