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ACCA Strategic Professional · Strategic Business Leader · Cost and management accounting

Orchard Foods produced 10,000 units in March at a total cost of $145,000 and 14,000 units in April at a total cost of $173,000. Assume the high-low method is valid and no step changes occur. What is the estimated total cost of producing 12,000 units?

The estimated cost is $159,000. The high-low method gives a variable cost of $7 per unit and fixed costs of $75,000, so 12,000 units cost $75,000 plus $84,000 of variable cost.

  1. A$159,000Correct
  2. B$155,000
  3. C$162,000
  4. D$147,000

Explanation

Variable cost per unit = (173,000 - 145,000) / (14,000 - 10,000) = 28,000 / 4,000 = $7. Fixed cost = 145,000 - 10,000 x 7 = $75,000. Cost at 12,000 units = 75,000 + 84,000 = $159,000. Check with April: 75,000 + 98,000 = 173,000.

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