Question

2. XYZ Ltd is estimating its costs on past information. The total costs incurred by the company at different levels of output were as follows: Output (units) 160.000 185,000 190,000 Total costs (£) 2,420,000 2,775,000 2,840,000 The company uses the high-low method to separate total costs into their fixed and variable elements. Ignore inflation Required: Show your workings for all parts. a. Calculate the estimated total costs for an output of 205,000 units. Ensure you show the variable cost per unit. (9 marks) b. The company has now established that there is a stepped increase in fixed costs of £30,000 when output reaches 180,000 units. Calculate the estimated total costs for an output of 175,000 units using this additional information. Ensure you show the new variable cost per unit for this output level.

Answer 1

Variable Coat computation using High Come method. Variable cont Total cost of High Actrity - Total cost of Come Allivity High Activity Come Activity Unte Unte = 2840000 - 2420000 = 420000 = 1 Alumik 190000 - 16000D 30000 fixed lost Computation Total cost - Vennable lost & Fixed Cost 2840000 - (190000 x 14) + Fixed last Fixed cost- 2840000 - (190000 x 14) - 2840000 - 2660000 = 180000 (2) Estimated sotal Total lock. Variable cost for output of 200000 unts. Cast & Fixed Cost - 205000 x14 + 180000 → 29 10000 +180000 2050000. Vaiable Contsuul - 2810000 - 14 hunt. 2050 ODD

16) Incase of stepped increase in find Conti. the same Here find call need to be calculated within range. Variable cat. Total core of Tolal Cost of High Activity Lome Aclively High Activity – Lom Activity lum Unte 2846000 - 2175000 190000 - 185000 Total cost fixed Cost & Variable Cost 2840000 - Fiend cast + (190000 +13) Siced cast - 2840000-(190000 *13) - 370000 Hence fixed lock for production belom 180000 units is 310000 - 30000 - 340000. Total lost for 115000 uuln. Total cost - Variable cont & fixed cost 24 20000 - Variable lorl + 3 40000 Variable cost, 24 20000 - 340000 2080000 v. Could uut = 2080000/160000 - 13/unt.