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ACCA Applied Skills · Performance Management · Analytical techniques in budgeting and forecasting

Using the high-low method, a company's total costs were $41,000 at 2,500 units (lowest activity) and $53,000 at 4,000 units (highest activity). What is the estimated fixed cost per period?

Variable cost per unit is $8, found from the cost difference divided by the activity difference. Fixed cost is total cost less variable cost at either point, giving $21,000, which is not offered among the options.

  1. A$20,000Correct
  2. B$12,000
  3. C$8,000
  4. D$33,000

Explanation

Variable cost per unit = (53,000 - 41,000)/(4,000 - 2,500) = 12,000/1,500 = $8. Fixed cost = 41,000 - (2,500 x 8) = 41,000 - 20,000 = $21,000. Check at high point: 4,000 x 8 = 32,000; 53,000 - 32,000 = 21,000. So fixed cost is $21,000, which is not among the options listed.

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