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ACCA Strategic Professional · Advanced Performance Management · Budgetary planning and control

Zentra Ltd produces a single product. Its monthly semi-variable maintenance cost was 41,000 at 2,000 machine hours and 53,000 at 3,000 machine hours. Using the high-low method, what is the budgeted maintenance cost for 2,500 machine hours?

The budgeted cost is 47,000. The high-low method gives a variable cost of 12 per machine hour from the change in cost over the change in hours, and fixed cost of 17,000. At 2,500 hours the cost is 17,000 plus 30,000.

  1. A47,000Correct
  2. B44,000
  3. C50,000
  4. D49,500

Explanation

Variable rate = (53,000 - 41,000) / (3,000 - 2,000) = 12 per hour. Fixed cost = 41,000 - (2,000 x 12) = 17,000. Budget at 2,500 hours = 17,000 + (2,500 x 12) = 47,000. Option 44,000 would result from ignoring part of the fixed cost, and 50,000 from using the wrong activity level.

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